UK Needs Tax Hikes
June 28, 2013 Taxation in UK
LONDON – The UK can no longer reduce its budget deficit by implementing major spending cuts, and the government will soon need to consider raising council rates, hiking GST or freezing personal income tax thresholds.
On the 26th of June the UK government held its annual Spending Review, revealing the initial estimates for the national budgetary plan for the upcoming year, and within one day the the UK based think tank Institute of Fiscal Studies (IFS) released an analysis of the announcement, saying that the government’s intentions are unsustainable and will necessitate a series of new tax hikes in order to implement.
In the latest Review the government stated that over the course of the next fiscal year approximately GBP 11.5 billion of cuts would be made to public spending, with a further GBP 25 billion of spending reductions over the course of the following two years.
According to the director of the IFS Paul Johnson, the announced slashes to expenditures will be hard to implement as there is very little room left for further reductions to public funding.
The IFS recommended that, as a means of raising more revenues, the government should look at freezing the threshold for the top rate of personal income tax instead of reviewing it every year, a move which would bring at least 1 million more individual taxpayers into the highest marginal tax rate.
Paul Johnson also said that the government should look look at increasing the rate of VAT, with a 1 percent hike being likely in the next few years.
The Director suggested that the government should reevaluate its decision to freeze the rate of council tax paid by property owners, as the leaving the tax at its current rate will effectively reduces tax revenues by wiping GBP 3 billion of potential tax collections from the government’s coffers in 2015 alone.