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Hikes to income tax and VAT likely as UK recovers from Covid-19, think tank says

The Institute for Fiscal Studies argued for an overhaul to some unfair or broken taxes such as inheritance and council tax.

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The UK has borrowed heavily during the pandemic (Victoria Jones/PA)

The UK has borrowed heavily during the pandemic (Victoria Jones/PA)

The UK has borrowed heavily during the pandemic (Victoria Jones/PA)

Rises to national insurance, income tax and VAT could be required to help balance the Government’s books, the head of an influential think tank has said.

Paul Johnson, the chief executive of the Institute for Fiscal Studies (IFS), argued that changes to smaller taxes, such as stamp duty and council tax, could help push down the size of the Covid-19 deficit in the coming years.

But taken alone such changes are unlikely to make enough of a dent in the large amount of money that the IFS believes will be required in the future, according to Mr Johnson.

The Government should look at the bits of the tax system that are either currently very unfair or currently broken and try to reform those in a way that would also raise some revenuesHelen Miller

During the financial year ending March the Government is expected to have borrowed around £400 billion, several times higher than normal.

The IFS estimates that around £60 billion might be needed to be raised through taxes in the coming years to help the economy recover and stay on top of its debts.

“If we’re really looking at these amounts of money – that it is hard to see how we do that without looking at the big taxes,” Mr Johnson said.

“While there are lots of things one might want to do, such as wealth taxes or fixing environmental taxes and so on – in the end, if we’re looking at raising a couple of percent of national income or more, it’s pretty hard to see how you get that without taxing incomes or spending, because that’s where … the very large majority of tax comes from.”

A 1% rise in income tax or national insurance has the ability to raise around £6 billion every year, the IFS said.

Mr Johnson’s colleague Helen Miller agreed that it will be “difficult to get really big sums, if you tie your hands and do nothing” on income tax, national insurance and VAT.

“But I think actually the Government should look at the bits of the tax system that are either currently very unfair or currently broken and try to reform those in a way that would also raise some revenues,” she said.

She singled out inheritance, capital gains and council tax, as well as the difference in the rate of tax paid by business owners and employees.

“We should reform our system, because badly designed taxes basically mean that taxes are more damaging than they otherwise would be. And of course that matters at all points of time, but now when the economy is doing badly, we need to make the damage as low as possible,” Ms Miller said.

PA


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