Britain is on the brink of an economic recession and is staring down the barrel of a £300billion deficit as a result of COVID-19. Boris Johnson had vowed not to raise Income Tax, National Insurance or VAT in his election manifesto, however, according to former Chancellor George Osborne, the Prime Minister may be forced to make a U-turn.
Mr Osborne – who was behind the decade long austerity programme following the 2008 financial crash – has warned Mr Johnson he must face up to the reality and make tough choices in order to recover the economy.
The former Chancellor told the Commons Treasury committee that hiking taxes for the big businesses and billionaires will help, but insisted the “big money raises” for the Treasury comes from Income Tax, National Insurance and VAT.
He said: “You don’t have to call it austerity, you don’t have to tell the public you’re doing it; you could try and get away with it as a Government and pretend you’re not doing it.
The UK economy is on the brink of a recession
Boris Johnson had vowed not to increase taxes
“But the truth is you’re going to have to make judgements about levels of tax, levels of spending. I raised VAT, because we had to take big steps to repair the public finances.
“You can talk as much as you like about taxing billionaires, taxing tech companies and all those things and it all adds up and helps.
“But the big money raises are your income taxes, your national insurances, your VATs – those big central taxes that the government relies on.
“And that’s why you see now speculation about national insurance, so to say ‘you know we’re just going to get the billionaires to pay for it’ is a cop-out from the real question that both the government and opposition have to confront.”
George Osborne has warned the UK could return to austerity
At the committee, another former Chancellor, Philip Hammond, insisted tax rises was the wrong way to go – and put forward slashing VAT in order to stimulate the economy.
He said: “Certainly I don’t think there’s any economic logic in increasing taxes in the short term, I think we all accept that the UK is a creditworthy mature very large economy can carry more debt in the context of the short term.
“There may be a need for some short term fiscal stimulus to the economy and that could be delivered through tax cuts – that could be VAT cut.”
The UK has the second highest coronavirus death rate in the world
The UK economy has been rocked further this week after The Office for Budget Responsibility (OBR) said it expects Government spending to increase by a further £9bn, to more than £132bn.
The OBR found spending on fiscal policies such as furlough schemes and business grants will cost an estimated £132.5 billion in the current financial year, rising from £123.2 billion at the last update on May 14.
The fiscal watchdog has previously forecast Britain is facing a £300bn deficit or about 15 percent of its gross domestic product (GDP).
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Government figures released on Tuesday show that 8.7 million jobs had been furloughed as of Sunday – around a quarter of the UK workforce.
This is a rise from 8.4 million a week earlier, when £15 billion had been claimed, Her Majesty’s Revenue and Customs (HMRC) said.
Last month, Chancellor Rishi Sunak announced an extension to the furlough scheme until the end of October, and a second grant for self-employed workers available from August.
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The furlough scheme currently pays 80 percent of employers’ wages up to £2,500 per month.
A Downing Street spokesman said: “The economic decisions we’ve made during this pandemic will put us in a strong position to bounce back in the future and carry on delivering the agenda set out earlier this year, continuing to invest in industries, infrastructure and jobs that can cut emissions, protect our environment and grow our economy.”