Britain’s tax burden will rise to its highest level for over 50 years after the chancellor announced significant tax hikes to deal with the consequences of the pandemic.
Delivering the annual budget in the House of Commons on March 3, Rishi Sunak, the chancellor of the Exchequer, said that corporation tax will be raised to 25 percent from 19 percent from 2023, by which time he predicted the economy should be past the COVID-19 crisis.
— Office for Budget Responsibility (@OBR_UK) March 3, 2021
Sunak also said he would freeze the amount of money that people can earn tax-free and the threshold for the higher rate of income tax at the 2021/22 level until April 2026.
According to the Office for Budget Responsibility (OBR), the tax rises will increase the tax burden to 35 percent of GDP in 2025/26, its highest level since the late 1960s.
The Institute for Fiscal Studies (IFS) think tank said the tax hikes will be risky.
IFS Director Paul Johnson said the rise in corporation tax is “a big reversal of decades of policy direction and a significant risk.”
Though Sunak insisted that the UK’s corporation tax will remain competitive in comparison with other G7 countries, Johnson said the country’s “effective tax rate will be relatively high.”
Freezing the income tax personal allowance will hit “middle England” and also poses a political risk, he said.
Julian Jessop, an economics fellow at the Institute of Economic Affairs (IEA), told NTD on Thursday that it was “a really important budget and a very difficult balancing act for the chancellor.”
“On the one hand, he had to provide more emergency support for the economy,” he said. “But at the same time, he’s worried about the cost of all of this, so he also announced quite big tax increases.”
He said there had been “speculation that taxes would have to rise as a result of the huge cost of protecting the economy during the pandemic, but it’s unusual that it’s a Conservative government that’s actually announced these tax increases, particularly on corporation tax.”
Jessop said it is a “particularly uncomfortable” situation for the government, which prefers to be a “low spending, small state, low tax government.”
To the British public, Jessop said the budget should be positive in the short term.
The extension of the government’s COVID-19 support will “prevent unemployment from rising anywhere near as far as people thought,” he said.
“In the longer term, though, they’re going to start to feel the bad news,” Jessop said.
“In a year or twos time, people will start paying more in income tax than they would otherwise have done. And also companies are going to have to start paying more in tax as well, and that increase in corporate tax is likely to be passed on in one way or another in the form of higher prices or lower wages.”
Reporting by Jane Werrell of NTD. Reuters contributed to this report.