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A new, leaked Treasury document has detailed some of the options for paying back a deficit that may hit £337billion by the end of the coronavirus pandemic. The Telegraph reports Government officials have discussed freezing public sector pay rises for another two years and ending the ‘triple lock’ system which ensures pensions rise in line with inflation.
Will tax go up after Coronavirus?
The document, dated May 5, reveals new forecasts for Britain predict the deficit will reach £337billion, as opposed to the £55billion estimated in the March Budget.
Traditionally, there are only a few ways to raise money – borrowing, tax rises and a campaign of austerity, so it does not seem unlikely that tax rises will follow coronavirus.
Transport Secretary Grant Shapps today said although he didn’t recognise the “speculative” figures, Britain would not be going back to “a world of austerity”.
The Treasury declined to comment on the report, but it is understood the document is one of many which has been put together by relevant teams to discuss future policy ideas.
Income Tax is protected by a ‘triple lock’ system and ranges from 20 percent on most people’s earnings to 45 percent for the richer few.
Prime Minister Boris Johnson pledged not to raise Income Tax, VAT or National Insurance until 2024 in the 2019 Conservative Party manifesto.
According to the Telegraph, however, Treasury officials warn it will be “very challenging” to maintain the triple lock in light of the pandemic.
The document states it is “economically better to break the tax lock to achieve revenue of this scale that to attempt to raise this level of revenue with this constraint”.
A penny of extra Income Tax on each pound earned can reportedly raise £5billion a year.
VAT was also protected until 2024 under the ’triple tax lock’ by the Conservatives.
This would be bad news for Britain’s lowest earners, who spend the highest percentage of their income on essential goods and services that have VAT.
VAT currently stands at 20 percent on most goods, raised from 17.5 percent in 2011.
Treasury officials believe a rise could “raise fiscally significant amounts” of revenue, according to the document.
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This seems to be the most likely option and has been hinted at by Chancellor Rishi Sunak.
National Insurance arrives in many forms, but the target for changes, in this case, is likely to be the self-employed.
Self-employed people who earn up to £50,000 a year pay a nine percent rate of National Insurance, while workers earning the same amount pay 12 percent.
Mr Sunak said in March: “I must be honest and point out, it is much harder to justify the inconsistent contributions between people of different employment statuses.
“If we all want to benefit equally from state support, we must all pay equally in future.”
The Telegraph reports that Government officials have discussed the idea of a ‘surcharge’ to use the NHS or social care services.
It is not clear from the document’s reporting how detailed this plan is, or what services could incur a surcharge.
Officials have been asked to provide advice on the timing of an announcement detailing the plans, which could be included in the Summer Budget.
The document advises the Chancellor the “timing, pace and composition of any consolidation should be managed carefully to avoid the risk of stifling the economic recovery”.
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