LONDON (Reuters) – British finance minister Rishi Sunak might have to raise a hefty extra 60 billion pounds ($83 billion) in taxes to pay for the COVID-19 hit to the public finances, but his March 3 budget is too soon for such a move, a think tank said.
The non-partisan Institute for Fiscal Studies said uncertainty about whether the pandemic would fade, or flare up again, meant Sunak should focus for now on targeted measures to prevent job losses and encourage business investment.
“For now, Mr Sunak needs to focus on support and recovery. A reckoning in the form of big future tax rises is highly likely, but not as yet inevitable,” IFS Director Paul Johnson said.
Sunak should start weaning the economy off blanket support measures and focus on helping younger and poorer people who have not seen their savings jump, unlike other household groups supported by state wage subsidies, Johnson said.
Sunak will also have to pump more money into health, education, justice and local government to cope with the fallout from the pandemic and meet the longer-term challenges of Brexit and an economy with net-zero carbon emissions.
An increase of 60 billion pounds a year in tax would be equivalent to a nine-pence-in-the pound leap in income tax rates. But any such revenue-raising shift would probably be spread across different taxes, the IFS said.
Prime Minister Boris Johnson’s Conservative Party ruled out raising the main rates of income tax, value-added tax or National Insurance during its 2019 election campaign.
Mel Stride, the Conservative chair of parliament’s Treasury Committee, said on Monday that a one-off wealth tax might be an option.
Sunak has authorised extra spending and tax cuts worth over 280 billion pounds in the current financial year, putting Britain on course for a 400 billion-pound deficit, its biggest ever as a share of the economy outside the two world wars.
Forecasts drawn up for the IFS by U.S. bank Citi estimated the deficit would fall to 130 billion pounds by the 2024/25 financial year, still more than double its pre-pandemic size.
“But there is tremendous uncertainty around this figure: borrowing would fall to pre-pandemic levels of around 50 billion pounds under Citi’s much more optimistic scenario and would remain at around 190 billion pounds under their more pessimistic scenario,” the IFS said.
The IFS called on Sunak to keep a 20 pounds-a-week increase in the Universal Credit welfare payment which is due to end on March 31, and also to help lower-earning self-employed people and slowly phase out his job retention scheme with targeted aid for workers in hard-hit sectors such as aviation and airports.