The Treasury Committee has launched a ‘tax after Coronavirus’ inquiry to examine whether there is room for windfall taxes to boost the UK economy in the wake of the pandemic.
Commenting on the inquiry, Rt Hon. Mel Stride MP, chair of the Treasury Committee, said: “The UK economy, like many economies around the world, has been placed under extraordinary stress due to [the] coronavirus, with the worst of the economic fallout perhaps yet to come.
“Tax will play a major role in the years ahead in restoring the public finances and ensuring that we have a recovery which is balanced across the UK and fair to all.”
“The Treasury Committee has launched this inquiry to examine how the Government should approach taxation after the coronavirus.”
The Committee has pledged to look at the major long-term pressures on the UK tax system as well as the role of tax reliefs in rebuilding the economy and how the government should approach taxation after the Coronavirus.
The inquiry follows a sharp dip in economic activity since the start of the year. The UK economy contracted 2.2% during the first quarter, recording the largest fall since 1979 as lockdown halted activity in March.
Rachael Griffin, tax and financial planning expert, Quilter, warned that Chancellor Rishi Sunak will likely be forced to reel in spending and increase tax in his Autumn Budget.
Griffin said: “There’s no doubt that the Chancellor will have to raid the piggy bank, and difficult choices on tax policy will have to be made. The Committee’s focus on post-pandemic tax reform is a welcome next step as it is important there is adequate consideration of how any potential change can be implemented efficiently, without distorting behaviour and while ensuring fairness to all. The recommendations it puts forward will surely contribute to the pressure on the Chancellor to find creative solutions to the complex challenges he faces.”
The Chancellor has already signalled his intention to put public finances back on a sustainable footing this Autumn, but there is debate around what these measures will entail.
There has been discussion around Capital Gains Tax, including whether the Chancellor will move to remove the CGT primary residence relief or scrap CGT altogether, as well as the suggestion of one-off wealth taxes or the abolition of key reliefs on pensions and investments.
According to Griffin, Sunak will need to assess what is practically achievable and politically acceptable.
Griffin commented: “Complete overhauls of the tax system are unlikely in the Autumn given the practical implementation challenges and the distortions it could generate, but tweaks and changes are inevitable.
“Case in point are the proposals for a wealth tax. A tax levied on the value of someone’s wealth is extremely difficult to actually implement in practice. What happens to those with considerable illiquid assets but few liquid assets? What happens to older generations who will need their wealth to pay for future social care costs? What happens to those saving for a deposit on their first home? This makes tweaks to pre-existing taxes on wealth much more likely.
“Raising CGT rates to bring them closer to income tax could be an option. Similarly, the current CGT annual allowance could be reduced. This would capture a larger number of people with relatively modest gains, increasing the footprint of CGT.”