Leaked reports from the Treasury suggest there are already talks underway with the Chancellor to see how the Government can recover the money spent in response to the Covid-19 crisis.
It is believed that the Government’s spending to support businesses and individuals, including the recently extended Coronavirus Job Retention Scheme, has created a £337 billion hit to public finances.
In response, the Treasury, according to the document in The Telegraph, is exploring new taxation measures, including income tax hikes, a two-year public sector pay freeze and the end of the triple lock on pensions to pay for the debt that has been created.
The paper states: “To fill a gap this size [in the public finances] through tax revenue risers would be very challenging without breaking the tax lock.
“To raise fiscally significant amounts, we would either have to increase rates/thresholds in one of the broad-based taxes (IHT, NICS, VAT, CT) or reform one of the biggest tax reliefs (e.g. pensions tax).
“As debt is likely to reach significantly higher levels after the crisis, it will be important to stabilise the debt-to-GDP ratio and prevent debt from continuing to grow on an unsustainable trajectory.”
As of yet, nothing more concrete has come out of the Treasury, but it is clear that the Government intends to recover money spent on the Coronavirus in some way.
It doesn’t seem likely that the Government will raise taxes anytime soon in light of the impact it would have on businesses and individuals who are already struggling, but many tax experts believe the Government may take action during the next Budget in 2021.
Our tax team will continue to monitor the horizon for potential tax increases and will keep you informed if anything changes. You must act quickly and seek advice if the Government announces a change to taxation that affects your income.