More than three-quarters of workers are willing to see income tax rates hiked to help the country pull itself out of the £300billion financial black-hole it now faces, new findings from a poll suggest.
In March, official figures revealed that the country’s economy shrank by 5.8 per cent, marking the biggest monthly decline on record.
Millions have been furloughed at the cost of taxpayers, businesses are borrowing colossal sums to stay afloat and the Bank of England has warned that Britain’s gross domestic product is on course to fall by 25 per cent in the second quarter.
Chancellor Rishi Sunak is due to publish a mini-budget in July, with taxpayers waiting to see how he plans to get the economy moving while simultaneously bringing in more coffers to the Treasury.
Challenge: The Covid-19 pandemic is taking a massive toll on the country’s economy
In theory, Sunak has a number of options open to him, including a cut or increase in VAT or a drop or rise in employer national insurance costs, higher tax on dividend payouts and other capital gains, or a hike in income tax rates.
At the end of last month, Prime Minister Boris Johnson vowed not to increase income tax, VAT or national insurance and protect the triple lock on pensions, despite coronavirus wreaking havoc on public finances.
On the surface, a sizeable proportion of the population would be willing to see their pay packets reduced via an income tax hike if it would help the country’s economy get on its feet again, according to a survey of 2,000 people by investment group AJ Bell and Opinium.
The findings claim that 77 per cent of people would be willing to see their income tax bill increased, with most finding an increase of 3.9 per cent extra palatable.
While these are striking figures, they need to be treated with a degree of caution.
None of those surveyed have yet found themselves starring in the face of a payslip with an even bigger income tax deduction than before.
Even so, less than a quarter of people surveyed said they would be unwilling to accept any rise in income tax rates as a result of the pandemic, AJ Bell and Opinium said.
While most would be willing to stomach a near 4 per cent rise in their income tax deductions, almost a fifth, or 19 per cent, are reportedly willing to pay an extra 5 per cent or more.
Somewhat unsurprisingly, however, just 2 per cent said they would be willing to see income tax rise by an extra 20 per cent or more to help get the country out of the financial doldrums.
Tom Selby, an analyst at AJ Bell, said: ‘While the Coalition Government opted for public spending cuts to tackle the deficit after the 2008 financial crash, Prime Minister Boris Johnson is reportedly reluctant to follow a similar path.
‘If this is the case then tax rises will likely be necessary to help balance the books – and Brits appear ready to do their bit.’
He added: ‘While policymakers will need to be careful not to stifle an economic recovery by hiking income tax rates too much, there appears to be general acceptance that the Covid-19 costs will need to be repaid and that tax rises are therefore a necessary evil.
‘Given battling this pandemic has required a collective effort, it would make sense for all of us to help foot the bill.’
While many people in AJ Bell and Opinium’s survey appeared apparently willing to digest an income tax increase, any shifts on pensions to tackle the economic fallout from the pandemic were less popular.
Only one in ten said they would accept scrapping the state pension triple-lock as part of the pandemic response, while just 9 per cent opted for scrapping pension tax relief.
The state pension triple lock sees the state pension increase each year by the highest sum among the following: earnings growth, price inflation or 2.5 per cent.
At the moment, it seems that the Government is highly unlikely to scrap the pensions triple lock, despite reports suggesting it has been advised to do so.
AJ Bell’s Mr Selby said: ‘When it comes to pensions the public is sending a clear ‘hands off’ message to the Chancellor.’
Around a fifth think inheritance tax should be in the Chancellor’s cross-hairs, while 21 per cent backed a National Insurance hike, AJ Bell’s and Opinium’s latest findings suggest.
Out of all the possible streams of extra tax income, capital gains, and tax paid on dividend payouts, were seen as the most agreeable routes for the Chancellor to take if taxes have to be increased.
More than a third listed dividends and capital gains as the ‘most acceptable’ options for higher taxes.
Towards the end of last month, Prime Minister Boris Johnson vowed not to increase income tax, VAT or national insurance, despite coronavirus wreaking havoc on the public finances.
He also stressed that the triple lock on state pensions would be maintained.
Standing by his manifesto pledges, Johnson told senior MPs: ‘We are going to meet all of our manifesto commitments.’
He told the cross-party Liaison Committee his desire was to ‘keep taxes as low as we possibly can consistent with our desire to invest in our fantastic public services’.
But, the financial reality facing the country is growing starker and grimmer by the day.
Over 8.4million workers have been furloughed at a cost to taxpayers of around £16billion a month, while business borrowing levels are soaring and swathes of redundancies look set to come in the year ahead as the true financial toll of the crisis unfolds.
Speaking to This is Money, John Cullinane, a tax policy director at the Chartered Institute of Taxation, said: ‘Any impact on people on lower incomes would depend on their type of income and what those changes in the income tax regime were.
‘While a 1 per cent increase to the basic rate maybe does not sound much, it is important to note that employees are also paying NIC at 12 per cent on income above £9,500; the self-employed are paying 9 per cent NIC on profits over £9,500, in addition to Class 2 NIC.
‘So, they might face combined effective joint Income tax and NIC rates of 33 per cent and 30 per cent.’
On AJ Bell’s and Opinium’s latest poll findings, Mr Cullinane added: ‘Some people have not lost income because of the Covid shutdown – but are spending less, on meals out and big events for example.
‘Arguably they could pay more tax. The poll suggests many are willing to do so.