Business forced to bear the brunt of Government’s £37bn tax raid and experts fear more hikes will follow

Businesses have borne the brunt of the £37billion tax raid launched by Boris Johnson’s government so far this year.

The Prime Minister and his chancellor Rishi Sunak have announced three major tax rises in 2021 – two in the Budget in March and another this week to tackle the NHS backlog and fix social care.

The hikes in corporation tax, income tax and national insurance will raise £37.4billion a year – leaving Britain with the highest tax burden in history.

And it is feared more will follow as soon as the Budget next month, as ministers battle to shore up the nation’s finances in the wake of the pandemic.

Analysis by the Mail shows that businesses have been hit hardest by the raids so far, footing £21.8billion of the bill.

The remaining £15.6billion, including a £600million hike in dividend tax announced this week, will fall on individuals.

The Prime Minister has insisted that Covid and social care crisis left the Government with no choice but to raise taxes – breaking his election promises in the process.

But there has been a furious backlash from business leaders who argue their rising contribution to the Exchequer will hit entrepreneurship, job creation and economic growth just as Britain emerges from the pandemic.

Tim Martin, chief executive at Wetherspoon, warned companies cannot afford tax rises. ‘Boris is a big spender,’ he said. ‘He’s always looking for big ideas to excite the public. What it means for this country is debt and taxes. We can’t afford his expensive tastes.’

And experts said that although business appears to have been asked to foot most of the bill, the higher taxes will in fact be paid for by the public in the form of fewer jobs, lower wages and higher prices.

Annabel Denham, director of communications at the Institute of Economic Affairs, said: ‘Businesses have proven themselves remarkably resilient during this pandemic.


                              © Provided by This Is Money

But their reward for enduring months of uncertainty, shutdown, social distancing and curfews is a Tory tax grab that will dampen confidence and stunt growth.

‘Higher taxes will reduce demand, discouraging investment and hiring. They will deter entrepreneurship and innovation by reducing the potential gains for risk takers.

‘But, in the end, companies don’t pay taxes: people do. Employers’ national insurance is a crude payroll tax that will lead to fewer job opportunities and lower wages.

An increase in corporation tax will be passed on to employees in the same way, though the burden will also be borne by consumers, in the form of higher prices, and shareholders, in the form of lower returns.

‘Everyone, especially after 18 months of hardship, will suffer.’

In the Budget in March, Sunak increased the main rate of corporation tax from 19 per cent to 25 per cent, raising £17.2billion by 2025-26.

At the same time, the Chancellor froze income tax thresholds, meaning the points at which people start paying the 20p rate and 40p rate do not rise, even as wages do.

With more people caught in higher rates of tax – in a process known as ‘fiscal drag’ – the Treasury expects to raise £8.2billion in 2025-26.

The £25.4billion twin raid was a major contributing factor to what turned out to be the biggest tax-raising Budget since 1993.

Six months on, Johnson this week unveiled plans to raise another £12billion a year through an extra 1.25 per cent levy on national insurance and dividends.

The national insurance hike, on employer contributions and those made by individuals, will raise the lion’s share, or £11.4billion. The dividend tax will raise another £600million.

Employers have typically paid around 40 per cent of national insurance while employees and the self-employed pay the rest. If that pattern is followed in future, the increase will cost businesses £4.6billion and workers £6.8billion.

Britain now faces the highest sustained tax burden in history.

According to the Taxpayers’ Alliance, it will reach 35.5 per cent of gross domestic product (GDP).

The Institute for Fiscal Studies said it has never been sustained above this level before, though it was higher briefly in 1969 and the 1940s before retreating.

Suren Thiru, head of economics at the British Chambers of Commerce, said the higher business taxes will ‘dampen the entrepreneurial spirit needed to drive the recovery’.

He said: ‘Businesses generate prosperity, create jobs and support communities. The focus should be creating the best possible environment for them to grow and thrive so they can sustainably deliver the tax revenue needed to support public services and the wider economy.’

Source: Thisismoney.co.uk

About the author

Related Post

Leave a comment

Your email address will not be published. Required fields are marked *