Economania

There is good news and there is bad news. First the good news – you will pay less tax this financial year. The chancellor has frozen tax rates so the average tax-payer will pay about £14 per year in tax and £6 less in National Insurance. No, go steady there! Don’t spend it all at once! The bad news is that allowances have been frozen until the tax year 2025/26 which means that in future years we will pay more in taxes. The personal allowance will remain at £12,570 which means that as incomes rise people will pay more tax.

The main Inheritance Tax threshold will remain at £325,000 which will collect some of the value of rising house prices. Duties on fuel and alcohol have not risen this year but there is no guarantee that they will not rise in future years.

All of this will, by the tax year 2025/26, be bringing in an additional £8 billion per annum to the Treasury.

The figures for Scotland are different and the looming elections there mean that it is not yet clear what will happen.

However, that will in itself make little impact on the debts racked up during the last 12 months. By the end of March of this year government borrowing is estimated at £355 billion. UK businesses have borrowed £73 billion through government-backed schemes of which it is estimated that at least £28 billion will ultimately be written off. Other lending through the Coronavirus Business Interruption Loan scheme and ‘bounce back’ loans has not yet been revealed.

The chancellor has indicated that he will raise corporation tax significantly in the future, but he cannot do so until the economy is much stronger that at present. In this endeavour he has an unlikely ally in the form of President Joe Biden, who has proposed a single, global level of corporation tax to prevent companies from cherry-picking where they base their operations and book their profits. This is an admirable idea but one which will meet with ferocious opposition. Moreover it would require a degree of political unanimity which looks increasingly unlikely given the current state of international tensions.

Biden has also proposed stricter regulation of the tech giants and more taxation thereof. Again, this will require a degree of unprecedented international co-operation since the tech industry is very fleet of foot and is not tied to a physical location as a steelworks might be. There is a much larger international dimension to consider. The coronavirus pandemic has had a much bigger impact on the Western economies than it has had in China and many other south-east Asian countries. In China there have been only about 5,000 deaths. In Britain we have had over 127,000 deaths, while in the US, as a result of Trump’s catastrophic blundering, over 580,000 have died. Italy likewise has suffered an enormous mortality rate.

Speaking on Radio 4’s ‘The Briefing Room’, Professor Kishore Mahbubani, Distinguished Fellow at the Asia Research Institute, commented that in China in particular it was perceived that “ ...the West has lost its competence ...”. It is for this reason that a newly emboldened China will become more aggressive in its territorial claims in south-east Asia and also more assertive globally. In Russia, in response to his declining popularity, Vladimir Putin is becoming more aggressive in Ukraine in an attempt to bolster his standing among his supporters. This too, in the very near future, will have an economic dimension.

The mortality rate of Covid 19 is presently running at about 0.2%. There have been 3 million deaths globally so far but the mortality rate, if maintained, would suggest a further 12 million deaths before the pandemic burns itself out – and that takes no account of future mutations in the virus. We are by no means out of the woods yet.

Sources
BBC Radio 4, The Briefing Room (1/4/20).
The Observer, 28/03/21 and 11/04/21

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