The U.K. government abandoned plans for a three-year spending review as Chancellor of the Exchequer Rishi Sunak, responding to record borrowing figures, said that “things would have been far worse” if he had not acted to protect jobs.
Public sector net borrowing in the first six months of the current financial year (April to September) is estimated to have been £208.5 billion, the Office for National Statistics announced on October 21. This is £174.5 billion more than in the same period last year, and the highest borrowing in any April-September period since records began in 1993, it said.
Central government tax receipts in September are estimated at £37.7 billion, £6 billion less than in September 2019, with “large falls in VAT, business rates, and corporation tax receipts,” the Office for National Statistics added.
“Whilst it’s clear that the coronavirus pandemic has had a significant impact on our public finances, things would have been far worse had we not acted in the way we did to protect millions of livelihoods,” Sunak said in a statement. “I’ve been clear that our enduring priority is to protect as many jobs and businesses as possible through this pandemic, which is the fiscally responsible thing to do.”
HM Treasury announced that a one-year spending package will be presented “in the last weeks” of November. It will focus on providing government departments with the certainty they need to tackle COVID-19 and deliver the “plan for jobs” to support employment, support public services in tackling the virus, and invest in infrastructure. Sunak canceled his autumn budget in September.
Sunak is expected to announce on October 22 an additional package of support for businesses in regions affected by new public health restrictions, The Guardian reported late on October 21.
Think Tank Favors Spending Cuts
The government should reexamine existing public spending before increasing taxes in the wake of the coronavirus crisis, according to the Centre for Policy Studies.
A combination of spending cuts and asset sales could generate £30 billion a year over the current Parliament's term, reducing the need for tax increases or additional borrowing, the center-right think tank said in an October 20 release ahead of the public borrowing figures. It outlined nine areas in which the government could “make easy savings, or realize extra value, without increasing the burden on ordinary families and small businesses.”
The think tank’s proposals include the sale and lease-back of public sector land, reductions in government administrative staff, scaling back the state pensions “triple lock” by removing the automatic 2.5 percent uplift, and removing the child benefit from better-off families.
The government may need tax rises of over £40 billion a year by 2024-2025 “just to stop debt spiraling upwards,” the Institute for Fiscal Studies said in its recent green budget. “We are heading for a significantly smaller economy than expected pre-COVID, and probably higher spending too,” Paul Johnson, the institute's director, said, adding that “tax rises, and big ones, look all but inevitable, though likely not until the middle years of this decade.”
Stamp Duty Holiday
Residential property transactions rose by 21 percent in September following the increase in the stamp duty land tax threshold to £500,000, Treasury said. The government has estimated that nearly nine out of 10 people getting on or moving up the property ladder between July and March 2021 will pay no stamp duty land tax at all.
“The move has helped to protect hundreds of thousands of jobs, benefiting businesses across the housing supply chain and beyond, with the Bank of England estimating that households who move home are much more likely to purchase a range of durable goods, such as furniture, carpets, or major appliances,” Treasury said.
Delays are holding up home buyers as a post-lockdown surge in demand, fueled by the stamp duty holiday, has “piled pressure on conveyancing solicitors, mortgage lenders, and surveyors to push through purchases,” the Financial Times reported.
Managing Tax Risk
Helping people to pay the right tax at the right time, combined with “managing tax risk,” has enabled the Welsh Revenue Authority (WRA) to protect revenues of up to £1.6 million over the next three years, the WRA said as it published its annual report for the 2019-2020 financial year on October 20.
The WRA raised tax revenue of almost £300 million in Wales in its second year of managing the two devolved Welsh taxes: land transaction tax and landfill tax. “We made system changes that made our services easier to use and we targeted our support activities where we can see a higher risk of people getting their taxes wrong,” WRA Chief Executive Dyfed Alsop said.
“The WRA continues to champion a collaborative approach to tax collection, working with taxpayers and their agents to ensure the effective and efficient collection of tax through more taxpayers getting their taxes right first time,” Welsh Minister for Finance Rebecca Evans said in a statement.