The day for taxation will come. For now, Sunak must budget for growth
Caught on the steps of Downing Street, Rishi Sunak had a message to send last week. Whether or not the lapse was deliberate, the capture of the chancellor’s notes by a press photographer played a useful role in laying the ground for his autumn budget.
There would be no “horror show of tax rises with no end in sight”, read the note Sunak was taking with him to a meeting of nervous backbench Tory MPs, unsettled that the party of low taxes was on the road to embracing Corbynomics.
Although offering words of comfort, the Treasury does still need to do some “difficult things”, the notes read. “But I promise you, if we trust one another we will be able to overcome the short-term challenges.”
Just days earlier, there had been reports that Sunak and his officials were mooting tax rises of “bombshell” proportions to recoup government funds depleted during the fight against Covid-19.
Many of the ideas were straight out of the 2019 Labour manifesto, such as aligning capital gains tax with income tax, which is typically higher, in a move to iron out unfair discrepancies and raise more money for the exchequer. Pensions relief and inheritance tax could be hiked. Corporation tax was said to be under review, with potential for the rate to be increased from its current level of 19%, one of the lowest among leading economies, to 24%.
The airing of the potential tax increases comes as public sector net debt has increased by £227.6bn over the past year to more than £2tn. National debt is at 100.5% of GDP for the first time since March 1961.
Sunak has increasingly been warning that “tough choices” will need to be made to tackle this debt mountain, laying the ground for a combination of tax rises or spending cuts this autumn. However, there is another way to respond: to boost economic growth, enabling the economy to grow much faster and Britain to bring down its debt pile over time.
Unlike his predecessor George Osborne, the chancellor has indicated a preference for this approach, despite the many hints that taxes might rise and spending fall. And this is the direction he should take.
Despite the size of Britain’s debt pile, mainstream economists agree the time for a reckoning on taxes should wait until several years into the future, when a stronger economic recovery from the Covid recession has taken hold.
Even free-market economists agree. Though expressing concerns over the debt burden for future generations, Philip Booth, senior academic fellow at the Institute for Economic Affairs, told MPs on the Commons Treasury committee last week: “I wouldn’t get too wound up about the increase in debt caused by the Covid crisis, that’s not my big concern. One of the reasons to accumulate government debt is to deal with emergencies.”
In the course of his time at No 11, Sunak has developed a reputation as a savvy media operator. After the whipping-up of a media storm, modest tax rises will sound much better to the Tory faithful who were fearing a “horror-show” budget of neverending increases.
When he comes to deliver the autumn budget, the chancellor would be smart to draw a line in the sand, to say that taxes will rise in future to fix the hole in the finances caused by Covid-19. However, the right time for a big tax-raising budget has not yet arrived. If anything, the reverse is needed – an expansive budget with an increase in funding to protect the jobs of millions of workers. Concerns over the national debt should be sidelined.
With Britain in the deepest recession since records began, and facing a winter of potentially rising coronavirus infections, as much support as possible is still needed for the economy over the coming weeks, months and years.
Home-working has taken the steam out of takeaway coffee
Coffee shops are suffering as commuters work from home, avoid public transport and watch their pennies.
Where once it was the norm to gather in crowded cafes or sip a takeaway cappuccino from a reusable cup, fear of the virus and the looming recession has sent us running for the kettle.
City centres, especially London, are quiet, and sales of ground coffee, coffee beans and home espresso machines are soaring.
The nation’s coffee chains were already trimming their store estates even before the coronavirus pandemic, after a period of over-expansion had made it tougher to turn a profit. Rising costs and heavy competition – as well as a thirst for better-quality coffees from independent vendors with local connections – was taking its toll.
The virus has accelerated those trends and introduced new ones. Commuters are not only adding up the time and cash cost of their daily journey to work, but also questioning whether the caffeinated milkshake they used to drink on the way was worth the price.
The shift to working from home has made suburbia more appealing. The age of broadband and smartphones mean we no longer need to be tied to our desks, and bosses will find it harder now to justify their demands for bums on office chairs.
There’s plenty of room for coffee shops in local neighbourhoods. They offer a relatively cheap treat, a comfy spot with reliable wifi, and a place away from a crowded house. They can be part of a local community, bringing people back together.
And not everyone wants to work at home. Young people still want to meet each other, learn and network – they will want to return to an office of some kind. Coffee shops will be able to survive – if they are prepared to adapt.
Even if HS2’s benefits are unclear, Keynesians will applaud the digging
For a train service that is currently running some seven to 10 years behind schedule, HS2 has certainly enjoyed plenty of official starts, launches and green lights. The latest, last Friday, was the official start of construction – something of a surprise to those who were paying attention in February when the government said the work would start within weeks. Nonetheless, after the Treasury signed off the main civil engineering contracts in April, shovels are now officially in the ground, 11 years after the government first nailed its colours to the high-speed mast.
Boris Johnson, who – lest we forget – had put the whole thing on pause to garner support among sceptical party members in his 2019 leadership race, was out last Friday in Solihull, near Birmingham, in full PPE, enthusing. To many, the merits of HS2 seem more doubtful since coronavirus, which has made the point of much pre-pandemic travel suddenly seem questionable. But the prime minister was zealous, proclaiming he had “absolutely no doubt” that mass transit infrastructure would be crucial for Britain in the decades ahead.
Perhaps it does not do to dwell on doubts when you have just decided to spend £106bn on a railway. Across the nation, the arguments will run and run until, or even after, the full high-speed network is up and running. Engineers and builders, however, need to crack on.
Coronavirus has in some ways made Johnson’s call easier. No one can truly predict the benefits HS2 will bring: whether we will zip between booming cities, stay working at home, or experience a yet more dystopian future of pandemics and climate change that affects our lives in unforeseen ways. But what we know now is that, with a recession under way and jobs disappearing, chancellors can find money to furlough workers and convince consumers to eat out. A good Keynesian would have us digging holes. At least this £106bn is building infrastructure to last.
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