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Wealthy set to escape tax raid as economy surges

·4-min read

Rishi Sunak has suggested wealthy families will be spared from a US-style tax raid as he hailed the strength of Britain's surging economic recovery.

The Chancellor on Tuesday said that he is "cautiously optimistic" about an upswing in economic growth as a string of data pointed to a sharp bounceback.

Mr Sunak said that measures he announced in the March Budget should be enough to return the battered public finances to a level footing - suggesting he has backed away from a hike to capital gains tax after speculation the Treasury was preparing a crackdown.

It came as data showed that household savings have continued to surge, and that droves of entrepreneurs are starting their own businesses ahead of further economic reopening on May 17.

Speaking at the Wall Street Journal's CEO Council summit, Mr Sunak said: "As we look forward to reopening over the coming weeks and months, there are signs to be cautiously optimistic and we can see that in the data. I’m hopeful that will be sustained through the rest of the year.

“We are seeing consumer confidence back to pre-pandemic levels. Chief finance officers are very positive. We know that there is an enormous amount of excess savings both in the household sector, approaching £140bn, and £100bn sitting on corporate balance sheets.

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“I think the signs are promising and the genesis of our policy a year ago was to help people protect their incomes, protect businesses, so that when we got to this point we could indeed bounce back strongly."

Mr Sunak added that the richest families in Britain are already taxed heavily.

He said: "The top 1pc, for example, of income earners pay or account for almost 30pc of all income tax receipts as it is, so I think we start with a very progressive tax system.

“We can get debt on a stable to declining basis broadly with the measures that we've already announced."

In America, President Joe Biden wants to almost double the rate paid on capital gains for the richest.

A review by the Office for Tax Simplification concluded last year that billions of pounds could be raised by a “greater alignment” of capital gains tax and income tax. 

The Chancellor reportedly considered taking action earlier this year, but ultimately spared investors. He instead announced a corporate tax hike and froze certain tax thresholds to plug the black hole left in the public finances by Covid. 

Mr Sunak said his plan to freeze income tax thresholds is “a progressive way to raise money” but said he would not comment on future tax policy. Treasury sources added that the outlook remains too uncertain to rule anything in or out.

Data released on Tuesday showed that Britain recorded the biggest surge in business births for at least four years in the first quarter of 2021, in a sign that funders are looking forward to a brighter future.

Experimental data for the three months showed there were 136,765 newly created companies - a 14pc rise compared to a year earlier despite the country languishing in a third lockdown and the strongest start to a year since the Office for National Statistics began collecting figures in 2017.

The recovery painted a stark contrast with a eurozone economy whose slump into a double-dip recession was confirmed by official estimates last week.

Retail accounted for about a third of the new businesses created over the quarter, while the average number of employees per new business dropped from 2.8 to 2.3 during the past three months as ventures move online

Meanwhile there was a 7pc slide in company deaths compared to last year.

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Insolvencies have slumped during the Covid crisis as firms enjoy tax deferrals and protection from creditors.

Other signs of economic life came in Bank of England figures showing that households saved another £16.2bn over the month, leaving them with a huge spending warchest for when indoor dining and drinking returns later this month.

Families paid off only £500m of credit card debt and other consumer borrowing during March, the smallest amount since last October, as the focus returns to spending.

Ruth Gregory, of Capital Economics, said: “These figures provide another reason to think that consumer spending was starting to gather some momentum in March.

"With consumers in position to power the recovery, this should mark the start of a rapid recovery that will push GDP back to its pre-crisis level in early 2022.”

Workers are also returning to offices in growing numbers after investment bank Morgan Stanley’s latest survey found employees working from home for 2.7 days a week on average, the lowest since last autumn.

However, fears over the longer-term impact of the pandemic on the workforce remain after ONS figures found that almost a third of the 1.3m workers over 50 still on furlough feared redundancy when the scheme ends in September.

Three in every 10 older workers, who are more vulnerable to long-term unemployment, rated their chances being thrown out of work at 50pc or higher.

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