With Chancellor Rishi Sunak’s increases set to take the overall tax burden to 35 per cent of GDP by 2025/26 – the highest level since the late 1960s under Labour Chancellor Roy Jenkins – it is clear he is planning to get public finances back on a sound footing.
But, in his Budget statement yesterday, Sunak also announced the furlough scheme, orginally due to end after a few weeks last year and which has helped to save 11 million jobs, will be extended until the end of September with the government continuing to pay 80 per cent of employees’ wages for hours they cannot work.
And, during the current financial year, the UK will borrow a peacetime record of £355 billion, with plans for £234bn more in 2021/22.
Such largesse is vital to keep businesses afloat and protect people’s livelihoods so we still have an economy capable of bouncing back when relative normality returns. But no one should become blasé about such extraordinary figures because this is utterly unsustainable spending.
The good news is that economists expect a bounce-back of record proportions. Gross domestic product, which has taken a hammering since the pandemic struck, could see the highest rate of growth in modern history as people who have been saving money during lockdown and are fed up staring at the same four walls go on a spending spree.
Douglas McWilliams, founder of the Centre for Economics and Business Research (CEBR), put it like this: “The post-lockdown spending boom could be the party to end all parties.” He even warned of a risk to the economy if this atmosphere starts to “get out of control”.
The historic tax burden may well act as something of a party-pooper. Amid any future celebrations, we do have to realise that all this borrowed money must be repaid and that likely means more pain for taxpayers in the future.
However, economists have long recognised that simply raising taxes doesn’t necessarily mean increased revenue.
So we can only hope that Sunak has done his sums with an eye to how taxpayers tend to respond to such decisions or the UK may be blighted by economic woes that could otherwise have been avoided for years to come.