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Targeted tax rises won't derail COVID recovery, UK chancellor told

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Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3-min read
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UK chancellor Rishi Sunak. Photo: HM Treasury/Flickr
UK chancellor Rishi Sunak. Photo: HM Treasury/Flickr

Tax rises targeted at businesses and the wealthy are unlikely to derail the UK's economic recovery from COVID-19, a leading think tank has said.

The Institute for Public Policy Research (IPPR) said in a report published on Friday that increases to corporation tax, capital gains tax, wealth tax, and land value tax would make a negligible impact on GDP growth.

It comes amid reports that chancellor Rishi Sunak will raise corporation tax and capital gains tax in next week's budget as he looks to stabilise the UK's public finances.

The IPPR estimated that increases to the four taxes it identified would raise £55bn ($78bn) for the exchequer, outweighing the limited drag on growth that these hikes would entail.

WATCH: What is inheritance tax?

READ MORE: UK 'needs £60bn tax hikes' to plug black hole left by COVID-19

"We must move away from the binary debate on tax rises and the recovery," said Carsten Jung. "The fact is, some taxes, like corporation tax and capital taxes, can be raised now without slowing the recovery, as long as they are accompanied by a big stimulus."

Last week the IPPR called on the chancellor to spend an extra £190bn to help drive an economic recovery. Other think tanks have also urged the chancellor to spend more despite UK debt soaring past £2tn. Most economists argue that investing in growing the economy now is the best way to pay the debt down as it will create the potential for bigger tax revenues in future.

Jung said targeted tax rises alongside spending would help to deliver a "balanced recovery" and address inequality.

"With many businesses and wealth owners having benefited from unprecedented government support measures throughout the pandemic, it is only fair for those who can afford it to contribute their fair share for a sustainable recovery," he said.

READ MORE: Chancellor urged to spend another £100bn driving COVID recovery

Sunak is set to deliver the government's annual budget on 3 March. Reports suggest his plans will broadly match private sector suggestions.

The Sun reported on Thursday that the chancellor will announce an extension of the stamp duty holiday, an extension of the temporary universal credit uplift, and extensions to COVID-era support programmes like furlough.

Alongside these giveaways, Sunak will reportedly raise corporation tax to as much as 25% and bring capital gains tax in line with income tax, which would hit owners of things like stocks and second homes. Tax rises come as the chancellor looks to address a budget deficit that is on track to reach almost £400bn this year.

READ MORE: UK second-home owners, stock investors, and pensioners could face £14bn tax hike

Darren Jones MP, chair of parliament's Business, Energy and Industrial Strategy (BEIS) Committee, on Friday said Sunak should use next week's budget to set out "long-term policies" to support the economy.

"For example, a more comprehensive plan to develop the education, skills and employment opportunities for workers across the country; and targeted support for newly indebted businesses who need to be supported to invest for growth, productivity, job creation and decarbonisation in the decade ahead," Jones said.

WATCH: What is a budget deficit and why does it matter?