Tax rises 'could kill off British economic recovery'

Senior government figures and business leaders have warned British Chancellor of the Exchequer Rishi Sunak that possible tax rises to help pay the bill caused by the effects of the novel coronavirus could wipe out chances of an economic recovery.

Last month, Sunak, who only became chancellor a matter of weeks before the world was engulfed by the pandemic, said that so far government efforts to tackle the virus and deal with its economic impact had cost nearly 190 billion pounds ($253 billion).

With the fall budget looming, measures being considered to get finances back under control include changes to pension tax relief and corporation tax, which could prove divisive at the highest levels of government.

Increasing corporation tax from 19 percent to 24 percent would bring in an additional 12 billion pounds next year, but would also prove unpopular with business.

"At the moment the economy is in such a fragile state that pushing tax rates up is very unwise," former Cabinet minister David Davis told The Times newspaper. "It could dampen any economic recovery. The effect of increasing tax rates could reduce the tax take quite significantly."

Davis also said that increasing taxes for the wealthy was not the Conservative way of thinking, and in the party's manifesto for the 2019 general election – written before novel coronavirus was a worldwide concern – tax promises figure highly.

"We know businesses are at the heart of a successful economy. That's why we will continue to back businesses with lower taxes," the manifesto said, also commenting "we'll help people with the cost of living by making sure people keep more of the money they earn through keeping their taxes low."

Another manifesto promise, the so-called triple lock pension promise, which guarantees increases through one of three methods, is another possible target, although Prime Minister Boris Johnson wants it protected.

Roger Barker, from business group the Institute of Directors, said any hit on businesses following the strain of recent months would be a step too far, considering all the challenges they already face.

"Many companies are saddled with debt and are facing the prospect of significant restructuring in light of the new normal," he said. "Adding to the cost burden could hurt investment and jobs over the coming months … Lifting taxes on entrepreneurs would be a bitter pill to swallow after so many went without support during the lockdown."

The British Chambers of Commerce is also wary of business taking the strain, warning that any revival could be killed off before it even began.

"It could slow investment, it could slow risk-taking among entrepreneurs and growth businesses," the group's director general, Adam Marshall, told the Daily Telegraph.

"Everybody in business understands the public finances have to be repaired but do it too early and you risk choking off growth at the crucial moment."