Britain faces tax rises 'reckoning' – but not until 2022, senior economist says

Anna Mikhailova
Rishi Sunak focused on stimulating an economic recovery in his mini-Budget on Wednesday - PA
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A "reckoning in the form of higher taxes" is coming, a senior economist has warned, but said that was not expected to happen until 2022.

Paul Johnson, the director of the Institute for Fiscal Studies (IFS), said the UK was facing its "deepest recession in history" and tax rises would be inevitable as a result.

He said: "The time to pay for all this will come – but not this year, and not next."

The autumn Budget is likely to see "more targeted tax cuts", Mr Johnson said, adding: "Affordability can wait for now."

Rishi Sunak, the Chancellor, focused on stimulating an economic recovery in his mini-Budget on Wednesday. Even expected measures to tighten spending, such as temporarily scrapping the pensions triple lock, were shelved.

Mr Johnson said: "Our capacity to do so [pay for this] will depend, above all, on how the economy recovers, hence the focus on recovery at the moment."

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In May, a leaked internal Treasury document showed officials were discussing tax rises including VAT, income tax and public sector pay freezes as potential ways to claw back the billions spent during the coronavirus crisis.

However, Mr Sunak's first priority is to stimulate economic growth, which has been significantly dampened by lockdown measures, and stave off an unemployment crisis.

Mr Johnson said the autumn Budget was likely to also be focused on boosting recovery, with more support schemes possible.

In March, the Government forecast a deficit of about £50 billion to £60 billion for this year. The IFS said that could now hit about £350 billion. Wednesday's measures will added another £30 billion to Government borrowing.

Mr Johnson said: "In normal times, even in a normal recession, we would have been taken aback by the scale of measures announced outside of a Budget – up to £30 billion of measures plus £33 billion of public service spending not previously accounted for.

"But, of course, this is no normal recession. It's the deepest in history."

Mr Johnson added in a mini-Budget assessment: "We will know more then [in the autumn] about the progress of both the virus and the economy. This should allow for more targeted support, perhaps more targeted tax cuts, more thought through investment programmes, more developed job support schemes."

On Thursday, Mr Sunak hinted that tax rises would be coming eventually, telling BBC Radio 4's Today programme: "We must return our public finances to a sustainable position over the long run."

Carl Emmerson, the deputy director of the IFS, said "quite a chunky tax rise", equivalent to about 1.5 per cent, would be needed once the coronavirus pandemic is over and Britain returns to a "new normal".

However, he pointed out that the reduction in interest rates "more than outweighs" the increase of borrowing by the state since March – even though borrowing levels are greater than in 300 years, apart from in the two world wars.

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