The Chancellor, Rishi Sunak, has confirmed his desire to ‘balance the books’ in his speech at the Conservative party conference. It once again raises the question of ‘when’ and not ‘if’ there will be tax rises to pay for the cost of the Coronavirus pandemic.
But now is not the time for tax increases. The Government’s priority has to be towards maintaining the current tax base and supporting economic recovery, a sentiment also recently echoed by the Labour party.
Rishi Sunak tested the water in the late summer with leaked reports of potential tax rises at the now cancelled Autumn Budget, but he quickly backtracked stating that there would not be a ‘horror show’ of tax rises.
Since then the Chancellor has come under increasing pressure within his own Conservative party to direct efforts back towards fiscal responsibility, as the economy starts to recover. He has intimated his agreement and recognises that the Government cannot continue to borrow at record levels, and he has a responsibility to return the public finances to a position of strength.
The Chancellor’s Winter Economy Plan was considerably more restrained than the previous announcements, signalling a tapering down of Government support. Saying that, the present outlook is very different to when the national lockdown was announced in March, but the economy remains in a fragile state and further job losses are expected over the forthcoming months.
The Chancellor is clearly between a rock and a hard place, but the timing of any tax rises is critical if the country is to get back on its feet.
The next Budget, expected in Spring, still seems early for major tax changes, and I expect the Chancellor will take his time to formulate a plan to announce increases in late 2021, which would take effect from 6 April 2022. This timeline also opens-up the possibility to offer some tax giveaways before the next General Election in 2024.