English (India)

British PM Johnson and FM Sunak blinks of corona tax

calendar 10/09/2020 - 16:24 UTC

On Wednesday, the British PM Johnson announced new coronavirus restrictions including a ban in all social gatherings of more than six people from 14th Sep ((‘rule of six’) at public places with a hefty fine and also introduced 'moonshot' COVID-19 mass testing program amid the resurgence of cases. Under the ‘moonshot’ plan, the British government allowed millions of people to be tested every day to allow them to roam freely.

Johnson said:

I wish that we did not have to take this step. But, as your prime minister, I must do what is necessary to stop the spread of the virus and to save lives. We are hopeful this approach will be widespread by the spring and, if everything comes together, it may be possible even for challenging sectors like theatres to have lived much closer to normal before Christmas---but there were numerous logistical challenges, and we're not there yet. Let me be clear -- these measures are not a second national lockdown. The whole point of them is to avoid a second national lockdown.

Overall, GBPUSD jumped almost +2.15% in Aug after less dovish BOE hold as the British Central Bank Governor Bailey downplayed any immediate implementation of NIRP (Negative Interest Rate Policy). The BOE warned the British economy would take longer to recover from its COVID slump than previously forecasted and unemployment is likely to almost double by the end of this year. Although the BOE has kept the NIRP in its toolbox, it has no plan to use it. Bailey said: They are part of our toolbox---But at the moment we do not have a plan to use them. There are some very hard yards, to borrow a rugby phrase, to come. And frankly, we are ready to act, should that be needed.

But in Sep, GBPUSD plunged almost -3% on renewed Brexit uncertainty as PM Johnson playing a hardball negotiator (like Trump) with the EU in getting the best possible deal for the U.K.

Also, there were a sense of panic as Johnson admin may hike corporate and capital gains taxes in the Nov budget to foot the surging COVID-19 bill, having flirted with death and new child tax. But Johnson and his Finance Minister Sunak played down tax rise plans amid rising discontent among Tory MPs. In briefings with the so-called ‘red wall’ Tories, the duo said they believed in a dynamic low-tax economy and vowed that there would not be a horror show of tax rises with no COVID-19 pandemic end in sight.

As per reports, Sunak was set for a ‘huge fiscal raid’ of ₤32B as Britain’s public debt is approaching over ₤2.5T after the corona pandemic stimulus, over 100% of its projected 2020 GDP output. Sunak was considering a ‘quintuple whammy’ of new levies comprising an increase in capital gains tax, an assault on pensions relief, a hike in petrol and other duties, a tax on online shopping, and a ‘simplification’ of inheritance tax.

The British Chancellor Sunak was also considering a proposal to increase the corporate tax from 19% to 24%, a move that would raise £12B next year, rising to £17B in 2023-24, but would also put the government on a collision course with businesses hit by the pandemic. This is also contrary to Tory orthodox thinking that the U.K. should aim to have one of the most competitive rates in the world. And cutting pension tax relief to 20% would raise another £11B, while a 2% online sales tax would bring in £2B, and a 1% increase in fuel duty would make £295M. Britain has employed around £585B for corona stimulus including budget infra spending, almost 22% of its projected 2020 nominal GDP.

But, Sunak was forced to dial back his tax hike proposals as it faced stern opposition within the Tory backbenchers, who said such tax increases were the wrong response to the COVID crisis, as the government needs to help the economy, not strangle it. The U.K. can’t tax in such pandemic times to faster growth and more prosperity. Even, Johnson is now reluctant to hike such taxes to pay for the COVID-19 stimulus bill and instead emphasizing on some austerity (cost-cutting) measures.

 

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