'No horror show of tax rises': Rishi Sunak faces tough balancing act

BRITONS face the prospect of higher taxes as the government looks to claw back vast sums spent during the pandemic -- a move that risks harming economic recovery, according to experts.

While Rishi Sunak on Wednesday (2) vowed that there would not be "a horror show of tax rises with no end in sight", he stressed that the government "will need to do some difficult things".

The chancellor, a snap of his script sheet revealed, told Tory MPs that  the financial measures planned "mean treating the British people with respect, being honest with them about the challenges we face and showing them how we plan to correct our public finances and give our country the dynamic, low-tax economy we all want to see".

Analysts said there was a clear signal that tax rises were on the way.

Reports suggested the chancellor was mulling hikes to raise between £20 billion and £30 billion, even as Sunak brushed aside some of them warning of heavy taxation as "speculation".

The hikes could be in the form of increasing income and corporation taxes, analysts said.

Helen Miller, deputy director at the Institute of Fiscal Studies, warned against acting too soon.

"Now is not the time to raise taxes," she said. "The economy is still weak and the recovery only just starting.

"It's hard to think of a tax that couldn’t be substantially improved. This offers a significant prize.

"Put simply, it is the quality as well as the quantity of any tax rises that determine how economically harmful they are."

The government has, in fact, cut tax during the pandemic, handing temporary reductions to the level of value added tax on food, accommodation and attractions.

It has lifted also the threshold at which stamp duty is due on home purchases, helping property buyers and the construction sector.

Sunak warned however that the state cannot "simply borrow" its way out of the current financial hole.

British government debt has exceeded £2 trillion for the first time following massive state borrowing as the coronavirus pandemic pushed the UK economy into a record recession.

That is equivalent to more than 100 per cent of the country's annual gross domestic product, or total economic output, for the first time since 1961.

The Conservative government, led by Prime Minister Boris Johnson, has launched multi-billion-pound packages, including paying private-sector wages, to tackle the pandemic's fallout.

'Stable footing'

"All the talk is of using higher taxes to put the public finances on a more stable footing," said Paul Dales, chief UK economist at Capital Economics research group, adding that Sunak faced a tough balancing act.

The chancellor, he added, "needs to say that he will raise taxes in order to maintain the political perception that the Tory party is better at managing the public finances than the Labour party".

"But on the other hand, he needs to say that taxes will remain low to keep the Tory party's low-tax reputation -- and also low taxes are one of the government's post-Brexit aims," Dales told AFP.