Targeted tax rises unlikely to derail UK’s economic recovery

The IPPR said in a report that increases to corporation tax, capital gains tax, wealth tax, and land value tax would make a negligible impact on GDP growth

Tax rises aimed at businesses and the wealthy are unlikely to derail the UK's economic recovery from the pandemic, according to a leading think tank.

The Institute for Public Policy Research (IPPR) said in a report published on Friday that increases to corporation tax, capital gains tax, wealth tax, and land value tax would make a negligible impact on GDP growth.

It comes amid reports that chancellor Rishi Sunak will raise corporation tax and capital gains tax in next week's budget.

The IPPR estimated that spikes to the four taxes would raise £55bn ($78bn) for the exchequer, outweighing the limited drag on growth that these hikes would entail.

We must move away from the binary debate on tax rises and the recovery, said Carsten Jung. The fact is, some taxes, like corporation tax and capital taxes, can be raised now without slowing the recovery, as long as they are accompanied by a big stimulus.

Last week the IPPR called on the chancellor to spend an extra £190bn to help drive economic recovery. Other think tanks have also called for similar moves despite UK debt soaring past £2tn. Most economists argue that investing in growing the economy now is the best way to pay the debt down as it will create the potential for bigger tax revenues in future.

Jung said targeted tax rises alongside spending would help to deliver a "balanced recovery" and address inequality.

With many businesses and wealth owners having benefited from unprecedented government support measures throughout the pandemic, it is only fair for those who can afford it to contribute their fair share for a sustainable recovery, he said.

Sunak is set to deliver the government's annual budget on 3 March. According to reports, his plans will broadly match suggestions by the private sector.

The Sun reported on Thursday that the chancellor will announce an extension of the stamp duty holiday, an extension of the temporary universal credit uplift, and extensions to pandemic-era support programmes.

Sunak will also reportedly raise corporation tax to 25% and bring capital gains tax in line with income tax, which would hit owners of things like stocks and second homes. Tax rises come as the chancellor looks to address a budget deficit that is on track to reach almost £400bn this year.

Darren Jones MP, chair of parliament's Business, Energy and Industrial Strategy (BEIS) Committee, on Friday said Sunak should use next week's budget to set out "long-term policies" to support the economy.

For example, a more comprehensive plan to develop the education, skills and employment opportunities for workers across the country; and targeted support for newly indebted businesses who need to be supported to invest for growth, productivity, job creation and decarbonisation in the decade ahead, Jones said.