AS I SEE IT
How to pay for the cost of the pandemic should force a change of thinking in Downing Street, says TERRY MURDEN
Boris Johnson may see himself as a modern day Churchill, but it is the message of another of his predecessors that is now ringing true in Downing Street. When asked what was most likely to knock governments off course, Harold Macmillan replied: “Events, dear boy, events”.
Mr Johnson had promised during last summer’s campaign to be elected Tory leader that he would be a tax-cutting Prime Minister. Within months he was rowing back on his plan to lift income tax thresholds for middle-earners to £80,000. The Conservatives’ general election manifesto pledged no increases to income tax, national insurance and VAT. Indeed, he planned an assault on NI to reduce the cost of employing people.
The pandemic forced an unavoidable change of course. And how. Spending commitments to prop up the economy make those promised by former Labour leader Jeremy Corbyn look like lunch expenses, though the reversal of policy was for entirely different and understandable reasons.
What is also inescapable is the need to claw back some of those billions. The man from the Treasury is now knocking on the door of Number Ten demanding Mr Johnson jacks up taxes.
The PM is said to be resisting such a move, considering it a betrayal of those who backed him as leader and who gave him such a resounding victory in the Christmas general election.
The prospect of a showdown between the Treasury and Downing Street would have seemed improbable after the merging of advisers that led Sajid Javid to resign ahead of the Budget in March.
But clearly there are sufficient forces within the Treasury to mount a challenge to the PM’s authority and they have collated a formidable list of demands that could see higher earners hit hardest. Chancellor Rishi Sunak’s department is targeting capital gains, inheritance, second homes, pensions. Corporation taxes rises, which had been due to become among the lowest in Europe, are also on the agenda.
Aside from the internal Cabinet battles to come Mr Sunak may win the big vote from the public. While tax rises are never popular, there has been broad support for using the tax system to help pay for the pandemic. A poll by the independent group Tax Justice UK, undertaken in March before the pandemic took hold, showed 74% favoured tax rises – including 64% of Conservatives. Significantly, it showed the public favoured the sort of tax rises now being proposed, particularly around capital gains, pension tax and corporation tax that are seen to benefit the wealthy.
However, raising taxes in a recession is not usually popular and, notwithstanding the public’s preparedness for such an outcome, there are those who see the current situation as an opportunity to create a fairer tax system, a policy that the Scottish Government has been keen to pursue in making its own adjustments to Westminster’s regime.
Tax reformers are therefore seeing this latest plan as the ideal time to make the changes that would raise the required additional revenue without hitting those at the bottom end of the income scale.
It may appear counter-intuitive for a Tory government to target the wealthy, but the pandemic has been an event that has cost the nation dearly, and changed attitudes and expectations about how we pay for it.