The government cannot tax its way out of the pandemic

By Scott Simmonds, researcher at the TaxPayers’ Alliance


Britain is grappling with the harrowing economic difficulties created in the wake of the coronavirus crisis. While signs of recovery have been small thus far, public spending and tax receipts are steadying. HMRC tax receipts for June this year have revealed signs of a modest recovery with a drop of ‘only’ 14 per cent compared to last year. Contrast this with a 42 per cent drop year-on-year in April and May 2020. But could these small saplings of growth be at risk of being nipped in the bud by the  tremendous weight of the tax burden?


The economy is still in a perilous state. According to the Office for National Statistics (ONS), between the 19th and 26th of July, footfall increased in the high street to around 60 per cent of what it was a year ago. Retail park footfall was similar, while shopping centres were performing better at 80 per cent. This might sound like positive news (considering at the height of the lockdown these rates were around the 20 per cent mark of last year’s levels), but this forms part of a longer-term trend, albeit accelerated by the pandemic, that people’s shopping habits are changing and high streets are a clear representation of that. When you take into account that the July 2019 footfall was the worst July performance in 7 years, falling by 1.9 per cent in July 2019, a further deduction of 40 per cent provides a sobering wake up call to the government.


As high streets are hollowed out by a mixture of changing consumer habits, relentless taxation and idiotic council interference. While the traditional high street is struggling, there has been a political temptation to implement even more taxes on online retailers. But the solution is unlikely to be in councils and ministers levying new charges. In the United States we’ve seen the heads of the large tech giants testifying in front of the US congress because politicians are wrongly suspicious of the economic gains they’ve made during covid. These companies among many others, large and small, have helped consumers access affordable essentials during the pandemic. Considering that the tax burden is already at a 50-year high, an imposition of even more new taxes (almost certainly passed onto consumers) would be unhelpful and regressive. Such a tax, which would hit the average household by at least £56 per year (and hurt the most vulnerable the hardest), could be the measure which slams the brakes onto the signs of growth we have seen. And it would do precisely zero to help our struggling high streets. 


There is a better alternative. Making business rates cuts put in place during lockdown permanent, to reduce the burden on struggling bricks and mortar businesses, would be one simple solution. Penalising both high street and online shops with additional taxes restricts the public’s spending power, at a time when the government should be encouraging us to part with our cash. Allowing people to spread more of their own money more widely within the economy would be a much better solution as Dan Hannan argued in a recent edition of TPA Talks. Lower business rates help to reduce prices, meaning more disposable income for tens of millions of Brits. As an added bonus that income tends to be spent in the hospitality sector, further helping to create jobs and grow the economy - or at the very least to help struggling firms hold onto staff


The government cannot tax its way out of the pandemic. Reducing the tax burden on everyone, businesses and individuals alike, will free up much needed spending power and get the economy firing on all cylinders again. New taxes, such as an online sales tax, are the opposite of what post-covid Britain needs. But with lower taxes coupled with a reduction in the current wasteful public spending, Britain really can ‘Build Back Better’.


This website uses cookies to ensure you get the best experience.  More info. Okay