We’ve heard from business owners that their main concern is tax rises in the near future.
After all of the support that the government has given out, Chancellor Rishi Sunak has always promised that ‘tough times will come’.
So, what can business owners expect to happen regarding taxation?
What’s Happening Behind Closed Doors?
A source that could help us understand the plans that are happening behind closed doors is a former Chancellor himself.
Phillip Hammond has famously stood outside of Downing Street with the red budget briefcase himself, and now he’s offered his own thoughts on how the government will be planning to recoup the money that they have given out as support.
He affirms that the government’s support has been very generous, however this sort of generosity cannot continue forever.
In his mind there are only 2 ways to recoup: taxation or cuts to public spending.
The Government’s Tax Plan?…
Speaking at the Avalara Inspire Conference, Hammond believes that in the very near future, the government will have to increase taxes.
He says that the decision will come in two waves, and the first will likely impact these 3 groups:
- Foreigners living in the UK
- Those who have extreme wealth.
However, this first wave of taxes is just a taster for what’s to come. This won’t generate the sort of money that the government needs, and they know that… because there just isn’t enough people to tax in those 3 categories.
So why would they tax them first?
The Reason For The First Tax Wave
The reason for this tax wave would be to set the stage for a bigger and broader tax further down the line.
There is very little risk to the government by taxing these 3 groups. If they are all unhappy, it won’t really matter in the voting booths – as there won’t be enough of them to impact voting in the UK.
Therefore this first tax wave is designed for this purpose:
The First Tax Wave:
Although it will recoup a small amount through taxation…
- It won’t impact the voting polls.
- It will make the broader population more accepting of the next tax increase.
The Second Tax Wave
This leads Hammond onto explain that the first wave of taxes, would ultimately be a tactic to get the broader population into a position where they expect tax to be increased for themselves.
The only real way to recoup the tax necessary would be to make the difficult decision to raise income tax, national insurance and VAT.
So, when implemented, most people will begrudgingly accept the increases.
This second tax waves would be designed for this purpose.
The Second Tax Wave:
After the first tax wave the broader population are now more understanding of tax increases. Therefore the second tax wave will:
- Recoup a larger amount of money through taxation
- Have some impact on the voting booths, but less than what it would have been without a first tax wave.
When Will The Government Increase Taxes?
Hammond expects that the government will hold off of this second tax wave until after the next general election (scheduled for 2024).
He also expected that the government will wait until the UK is in a full-fledged recovery period before taxation, and by that point the general election will be looming.
Of course, please take all of this with a pinch of salt…
Hammond is, of course, no longer in the discussion room for Treasury meetings so has no insider knowledge into the current conversations.
However, with many years experience in meeting rooms like that – his insight into what happens behind closed doors is not only extremely interesting… but also a very valuable insight at this time of uncertainty.
Get More Business Blogs Like This
Interested In Our Accountancy, Tax, Bookkeeping & Payroll Services?
Get In Touch Below