Chancellor Rishi Sunak released the fiscal budget for the next year last week, and whilst the funding is scarce for the country, the Tories still seem to be protecting their fellow members of the patriarchal elite. It almost seems predictable by now after the last ten years of neglect for the working class, but there was a shred of hope that the pandemic would make things different.
One key takeaway from the budget was the tax threshold freeze starting in 2022, which means that the tax band requirements can rise and fall for the remainder of the year until they freeze until 2026. Whilst this may seem like a positive intervention, it means that the government can manipulate the tax threshold for the rest of the year to their liking. This can put households and small businesses in jeopardy as they struggle to get back on their feet during the exit of the pandemic restrictions. As for the multi-million corporations, they would be able to afford a tax increase and be more equipped to face tax uncertainty; however, they will see the same fluctuation as those working-class households who have struggled so much 12 months.
A question circulating over the last few months has been – where exactly is this money coming from? Public sector net borrowing is estimated to have been £35.9 billion in August 2020, which is £30.5 billion more than in the previous year. It is clear to see that the pandemic has cost the government a lot in bonds and party donations, which totalled £11.55 million, according to the Electoral Commission data.
How the economy is going to recover from this unprecedented level of borrowing and collapse is still unknown. However, tax rate increases are likely to be brought into force, which will seek further damage on working-class families and small, local businesses which have struggled so much.
A measure that took many by surprise was the corporation tax level’s delayed approach, raising from 19% to 23% over the next two years. This will give smaller businesses time to get their footing once they can open again and allow them to upscale their business to make more profit to compensate for this upcoming tax increase. While this may help balance the money borrowed during the pandemic, it will also steer potential commercial investors away as they would have to sacrifice more profit than they might in other countries where the corporation tax rate may be much lower. This would directly damage the pandemic’s recovery process as the potential GDP growth rate would be slowed by the lack of investment and the slowed rate of domestic consumption, which directly results in an increased cost in imports.
Smaller businesses will directly impact the increased corporation tax rate as they will be the ones left to pay the increased taxes and will likely suffer greatly from this, whilst bigger businesses will sit comfortably still, especially after profiting from the COVID-19 induced hysteria. According to the Retail Gazette, the well-known supermarket chain Asda received a 6.9% increase in basket value and a 3.5% increase in sales during the first months of the pandemic. Because of this, they can now afford the new corporation tax rates without having to borrow or even go into administration like other well-known brands such as Debenhams and Topshop have. This shows how the Conservative Party acknowledges the excess profits made by some companies and refuses to provide further protection for those local businesses who are suffering.
Individual owners of multi-million companies are also reaping the benefits of the 2021 budget, as the £2,000 tax-free dividend allowance is remaining the same. This means those who earn more than the majority of the population will not see any change in their untaxable income, despite the ever-growing need for them to become more paternal towards those who have been affected terribly by the pandemic. Additionally, additional-rate taxpayers, which pay the higher levels of tax, will remain unaffected.
Still, when the income tax personal allowance rises as planned in April, they could pay less tax or avoid it altogether. This can put an unnecessary added strain on working-class families that pay the lower tax rates and earn much less, as they are relied upon to help recover the money the government had lost through excess borrowing through the pandemic, which goes to show how disproportionately treated the working class are in the UK.
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