Beyond COvid: The Digest

When and how should we raise taxes?

September 7, 2020
SUMMARY
  • Our focus this week is on the prospect of tax rises.
  • Registration is open for our upcoming webinar on mass unemployment and job creation beyond Covid-19.
  • Read our In Brief and Reflections sections to see the latest research and analysis around economic recovery and reform Beyond Covid.
  • To get in touch with feedback or suggestions for next week's Digest, contact us on info@beyond-covid.org.

In Focus: When and how should we raise taxes?

  • The prospect of tax rises dominated the agenda this past week, following news that HM Treasury is considering raising taxes on the wealthy and the Treasury Committee's oral evidence session for its Tax After Coronavirus inquiry.
  • There is widespread agreement that the Government's fiscal position should remain broadly expansionary in the near term to support the economy. For example:
  • ~~The Financial Times' Chris Giles writes that "there is no economic pressure to start [fiscal] consolidation now" and that managing the Covid-19 crisis should remain the policy focus.
  • ~~"I certainly do not think we should be looking at tax rises this year" - IFS Director Paul Johnson before the Treasury Committee.
  • Still, changes to the tax structure could be made in the short-term - to make it fairer and more efficient - while maintaining an overall expansionary position.
  • ~~IPPR's Carsten Jung has written about the task of making "long overdue" reforms (equalising taxes on income from work and from wealth, tackling pension tax relief and increasing corporate tax) in a way compatible with economic recovery.
  • ~~Capital tax reform would make income taxes on the wealthy more effective, argues the IFS's Helen Miller.
  • ~~Both Jung and the Resolution Foundation's Mike Brewer have proposed a windfall or "solidarity" tax on e.g. businesses whose profits have been unaffected or boosted by Covid-19 disruption.
  • ~~Paul Johnson highlighted council tax as "extremely inefficient and inequitable" and pressed the need for better taxation of more expensive properties in his evidence to the Tax After Coronavirus inquiry.
  • The Treasury is reportedly considering raising fuel duty, opening up debate around 'green taxation'.
  • ~~It is estimated that the fuel duty freeze since 2010 has increased UK emissions by 5%, while costing the Government £100bn in lost revenue.
  • ~~Nevertheless, CO2 emissions from cars are taxed far more highly than from other polluting activities - e.g. heating- highlighting the need for better structured carbon taxes across the board.
  • ~~Witnesses for the Tax After Coronavirus inquiry outlined the need to develop a net zero tax strategy.
  • Economists have criticised the popular rhetoric around the need to raise taxes to 'pay for' the costs of the pandemic or the UK's high debt-GDP ratio.
  • ~~Oxford's Professor Simon Wren-Lewis argues that "in an age of ultra-low real interest rates, shocks to the debt to GDP ratio like the pandemic should be allowed to gradually wither away. Trying to reduce debt by running deficits close to zero threatens to derail a full recovery.
  • ~~Rather, demographic pressures and demand for better, more resilient public services underlie the need for higher taxation, as argued by Sheffield Professor Michael Jacobs.
  • ~~Senior IPPR economists have argued that focussing solely on debt - and not broader public sector net worth - is a mistake, opening up space for increased borrowing to fund the "green recovery" investment packages necessary for achieving net zero.
  • ~~There is some academic debate over whether taxes will have to rise at all - which Professor Wren-Lewis summarises as a debate over inflation forecasts.
  • ~~Macroeconomist George Magnus has written about the prospect of financial repression instead of tax rises.

Watch our latest webinar: Lord Jim O'Neill and Heidi Chow of Global Justice Now unpack the debate surrounding patents, innovation, and the relationship between public funding and private pharmaceutical companies.

In brief

  • The US refuses to join WHO-led efforts to develop a Covid-19 vaccine and work towards global distribution.
  • ~~Last week's episode of the Beyond Covid Discussion Series covered these issues.
  • ~~Lord Jim O’Neill (Chair, Review on Antimicrobial Resistance) gave us an overview of the political economy of pharmaceutical development, and explained how policymakers are more conducive to ideas of public ownership following the Covid-19 pandemic.
  • ~~Heidi Chow (Senior Campaigns and Policy Manager, Global Justice Now) gave a comprehensive explainer of the intellectual property barriers for ensuring a global distribution of Covid-19 treatment, and explained how ‘vaccine nationalism’ will prolong the pandemic and its economic impacts.
  • EU climate chief Frans Timmermans doubled down on efforts for a green recovery, suggesting that the cost of tackling climate change would be ‘dwarfed’ by the price tag of inaction.
  • France announced its 10 year $118bn recovery plan, including a 30bn euros stimulus for climate transition and tax cuts. Macron describedthe package as a ‘sovereignty accelerator’.
  • Scotland’s Programme for Government outlines their green recovery plans, including a £2bn Low Carbon Fund to improve energy efficiency in buildings, a £100m Green Jobs Fund and £60m for industrial decarbonisation.
  • ~~Think tank Common Wealth has published its analysis of what the Scottish Programme for Government should deliver here.
  • Carbon Tracker has warned that oil and petrochemical companies risk $400 billion of stranded assets if they continue to invest in plastics production.
  • A new report from Institute of Fiscal Studies forecasts local government spending pressures of £4.4bn in 2020-21.
  • Standard Life Foundation have launched a Coronavirus Financial Impact Tracker to monitor the economic effects of the coronaviruspandemic on people’s finances.

Reflections

  • The Guardian's Hettie O’Brien exposes the rentier interests behind the push for a 'return to the office' and examines what the world of work might look like in their absence.
  • Tim Pitt, senior adviser to former Chancellors Phillip Hammond and Sajid Javid, argues that Rishi Sunak must articulate a renewed ‘Conservative economic philosophy’ in the Autumn Budget.
  • The FT Editorial Board argues that the UK and EU need to compromise over state aid rules to achieve a deal.
  • The Times's James Forsyth writes on Johnson's approach to Brexit negotiations.
  • Ulrich Volz writes for the IMF, suggesting that new financial instruments will be needed to support vulnerable Global South economies when they are hit by climate-related disasters.

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