Cabinet Struggles with Decision on Raising Taxes

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June 25th 2022
Tax Week 12
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Cabinet Struggles with Decision on Raising Taxes

Demand from various departments is placing pressure on how to obtain funding.

Moving toward an end to austerity would see the demand from various departments for increased budgets. Ending the public sector pay cap would cost from £6 to £9.5 billion per year. Increased budgets for schools, hospitals and the armed forces would be a minimum of £1 billion. The extra funds required has led to pressure on how to gain funds without resorting to more borrowing.

Chancellor Philip Hammond is against borrowing more money stating it would just defer the cost to future generations at great cost. He has also already prepped ministers that increasing taxes will be the only option.

At the moment options include the reinstatement of the dropped policy for raising National Insurance Contributions for the self-employed. This unpopular policy was removed after the Spring Budget due to public pressure - when the Conservatives had a majority - bringing it back now might be more difficult.

Another option is to limit the amount of tax relief higher earners can get on their pension contributions. A limit is already in place based upon the amount of contributions made but this may go further to create bands based upon income.

A likely option is to cancel the planned decreases in corporation taxes. The conservatives planned, in their manifesto (2015 and 2017) to get the main rate of corporation tax down to 17 percent by 2020. Scrapping this drop would save £4 billion in a direct calculation of increased revenue. However, this does not account for increased investment into the country based upon the drop in rate.

The minority partner of the Conservatives, the DUP, may back this change as they would prefer the 'rest of the UK' tax rate stay higher than Northern Ireland in order to reduce competition with an incoming 12.5 percent Northern Irish corporation tax rate.

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