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Tax and the recovery

Tax and the recovery

  • March Budget. The Telegraph reported last week that the Chancellor is “thought to be moving away from major tax increases in next month’s Budget… delaying any fiscal pain to a second Budget later this year”. In their coverage, the Financial Times emphasised that while Sunak will focus on supporting the economy through lockdown, he will also use the March Budget to be “open and honest” about what “fiscal discipline” means - introducing some tax rises now and signalling more for the autumn.

  • Conservative disagreement. The FT cites former Cabinet member David Davis and former Thatcherite minister Sir John Redwood as examples of Tory opposition to “fiscal discipline” in the short- to medium-term, e.g. Davis: “I would aim to start thinking about balancing the books in three years’ time. The aim now should be to do everything conceivable to help the economic recovery”.
  • ~~Political concerns. Sunak’s motivations are in part political - reflecting a desire to put “clear blue water” between the Conservatives and Labour with his approach. The Chancellor might also hope that bringing forward tax rises will give him the freedom to cut them again before the next election, as reported in September.

  • False trade-offs. The debate around tax rises is characterised by a supposed, binary trade-off between tax rises to ‘pay down the debt’ on one hand, and supporting recovery on the other - but this is misleading.

  • Do we need to pay down government debt? No - in the short-term, the overwhelming economic consensus is that there is no pressing need for fiscal consolidation, and that the focus should be on supporting recovery, as we have covered here and here. The OECD’s chief economist has expressed concern that the UK and other Western governments remain too fiscally conservative in this respect.
  • ~~Even once recovery is well underway, the case for tax rises still does not come from any need to “pay down the debt”. Oxford’s Professor Simon Wren-Lewis has written about how it makes little sense to target government debt reduction in light of its role as a shock absorber. Rather, higher taxes would support an ageing country with better public services in the long term, as SPERI’s Michael Jacobs has highlighted.

  • Will tax rises inhibit recovery? While the case against overall fiscal consolidation, especially with respect to spending cuts, is clear-cut - as above, the economic consensus is that large scale fiscal policy is needed - tax is more complicated. Wealthier households and certain businesses have done disproportionately well during Covid-19 - raising taxes on these groups is unlikely to suppress economic activity, especially if combined with redistribution. Indeed, taxation could play an important role in shaping the recovery to be e.g. more equitable and more green.
  • ~~Analysis. The Times’s Philip Aldrick and Tax Justice UK’s Robert Palmer both offer good overviews of the role tax can play in recovery.
  • ~~Excess Profit Duty? Economic historian Norma Cohen writes for the FT on how a tax innovation from after WW1 could be used to target the “outsize profits” some companies have made during Covid-19 to prevent a “K-shaped recovery”.
  • ~~Green taxation. The Grantham Institute has designed a fiscal framework for climate action, while Common Wealth and the New Economics Foundation have laid out principles for green taxation reform.
  • ~~Wealth tax? Conservative MP and chair of the Treasury select committee Mel Stride appeared supportive of a wealth tax on Times Radio this week (video and details of proposal on Twitter).
  • ~~Other forms of wealth taxation. The Chancellor’s review of capital gains tax suggested raising tax rates on income from wealth so they are closer to rates on income from work. (See IPPR for a good overview of wealth taxation.

  • Tax reforms. There is also the opportunity to reform the tax system along these lines without necessarily raising taxes in any individual area, e.g.:
  • ~~Personal allowances. In view of reports that the Government is looking into freezing the personal allowance, read NEF’s report on a cost-neutral alternative to the allowance that is both highly distributive and better for macroeconomic stabilisation.
  • ~~Property taxation. A number of Conservative voices (Onward, the Property Research Group) have made the case for reform of property taxation. As it stands, the present system is highly inequitable and inefficient - which is why coming rises in council tax are of serious concern (FT: “austerity by stealth”).
  • ~~Conservative view of tax reform. Last week Kevin Hollinrake MP set out a number of areas for tax reform on ConservativeHome, showing a considerable degree of overlap with progressive proposals.


  • Big Bang 2.0? The centre-right Centre for Policy Studies and the Northern Research Group of Conservative MPs published ‘A Northern Big Bang’, a report with a series of recommendations - including leveraging UK Infrastructure Bank investment, relaxing planning laws and creating a Northern Infrastructure Bond - for stimulating private sector investment in the North of England and addressing the regional productivity gap. (Yorkshire Post coverage here, Guardian here)
  • ~~Initial analysis. Progressives have, on the whole, been critical of the ‘Big Bang’ approach of prioritising private over public investment. Sarah Longlands of IPPR North criticised the free market approach to tackling regional inequality, arguing that the CPS report neglects the role of planning in creating the conditions for investment. The Open Data Institute’s Tom Forth looked into the report’s claims here.
  • ~~De-emphasise deregulatory instincts. In an interview with the FT’s Martin Sandbu about the new economic consensus, economist Dani Rodrik argued: “[in] industrial and regional policies, we must target the creation of good jobs and maybe de-emphasise a little the traditional focus on capital investment, global competitiveness, innovation and so forth. Because even when those work they don’t necessarily create good jobs.”

  • Ministers accused of breaching equality law. A coalition of 24 organisations and individuals - including the TUC, Amnesty International, Save the Children and the Women’s Budget Group - wrote to the Equality and Human Rights Commission, arguing that the government has failed to consider the unequal impact of its pandemic response upon women and other groups protected under the Equality Act.

  • Gender equality in 2021 The Women’s Budget Group produced a video to explain how different groups of women have been impacted by the pandemic and the lessons to learn in 2021.

  • Beyond the hostile environment. IPPR called for root and branch reform of the Home Office to end the hostile environment for migrants and ensure people can access employment, housing, public funds, free healthcare and financial services. (Video explainer here)


    • Thinking big at COP26. Conservative MP Andrea Leadsom argued for developing a ‘global green investment bank’ to “pull together the investment expertise of the global pensions industry with the project financing skills of infrastructure investors… to dramatically improve our lives and those around the world”.

    • Green Homes Grant: “The news the government is likely to claw back funding assigned to the Green Homes Grant scheme is the biggest blow yet to the credibility of the Prime Minister's green recovery promises, and it does not bode well for the UK's wider net zero strategy.” (BusinessGreen)

    • Hydrogen not a silver bullet? Professor of mechanical engineering at Cambridge University, David Cebon, argued that a hydrogen powered economy won’t be a silver bullet for the UK's renewable energy needs.

    Work and incomes

    • Levelling up and workers' rights. The RSA’s Matthew Taylor criticised the government “inertia” over protecting workers' rights, arguing that “levelling up… has to include ensuring workers… have the rights and entitlements that they deserve”.

    • Youth unemployment and scarring. Official figures found the Kickstart scheme has created 13 jobs a day on average since September, whilst 292 more people are becoming unemployed daily.

    • Future self-employment ‘exodus’. Two trade unions (Prospect and Community) published a report on the financial insecurity for self-employed people, finding 46% of respondents said they were “less likely to continue in self-employment due to their experience in the pandemic”. The report offers a suite of recommendations for UC reform, extending workers rights to the self-employed and more. (LabourList coverage here)

    • Welfare conditionality leads to surveillance. Privacy International surveyed the DWP's approach to investigations into benefit fraud by claimants of Universal Credit, finding that “the DWP conducts physical surveillance of benefits claimants and works with tabloids to build a narrative that they clamp down on so-called ‘benefits cheats’”. (Guardian coverage here)

    • Life on Low Pay. The Living Wage Foundation published a report exploring the impacts of the pandemic on pay, and the broader health implications of low paid work.

    • Extending government support for business. Research from the IPPR found almost one third of UK firms risk becoming bankrupt by spring if support is not extended, corresponding to almost 600,000 employers employing 9 million people. (Twitter thread explainer here)


    • No health/wealth trade-offs. MedAct’s Economic Justice and Health Group briefing picked apart the assumption that public health and the economy are in tension.

    • Funding self-isolation, stopping transmission. Labour’s Jonathan Ashworth called for more government support to help workers self-isolate following data showing Covid cases falling more slowly in ‘Red Wall’ seats, as more deprived constituencies are less likely to have workers able to work from home.

    • "Vaccinate the world". The FT’s Martin Wolf argued that world leaders should do “‘whatever it takes’ to finance accelerated production and distribution of vaccines globally”.

    • Health and Social Care reforms. Writing for, The Local Government Association’s Adam Lent criticised the government’s Health and Social Care white paper for being overly focused on centralisation of decision making power over the NHS into ministers' hands rather than communities.
    • ~~Similarly, the founder of campaigning group EveryDoctorUK argued: “The government are centralising control over the NHS, taking power away from local staff, while reducing their responsibility for local problems as the crises emerge”.

    • Privatisation and outsourcing. NEF’s weekly economics podcast covered the economics of outsourcing services to the private sector, contrasting the approach with a previous episode on public ownership.

    Monetary policy

    • Green central bank objectives. Oil Change International and Reclaim Finance criticised 83 central banks and their advisors for using scenarios that are biased toward a 2 degree celsius increase in global temperatures, rather than a 1.5 degree preference given in the Paris Agreement.

    • The return of monetary financing. Transformative Responses to the Crisis have published Daniela Gabor’s report on monetary financing, which advocates a “framework for coordination with fiscal authorities that re-embeds money and credit in pursuit of the common good, and that is tailored to green and health-friendly objectives”.

    • Alternatives to QE. Positive Money’s Simon Youel explained the effect of quantitative easing on inequality and arguing for a new settlement for fiscal-monetary coordination.