The British government has in recent days become one of the first economies in Europe to introduce a concrete plan for raising taxes, with the aim of reducing the replica deficits created in the last two years as a result of dealing with the corona plague.
The British Parliament has approved a tax increase plan that is expected to generate at least £ 12 billion a year for the country. The plan includes increasing the country’s social security provisions by 1.25% to fund British National Health (NHS) spending.
Across the continent, countries have temporarily suspended restrictions on the depth and duration of the deficit over the past two years to prevent the spread of the corona plague, and to try and curb the economic consequences of dealing with it. By deliberately deepening the deficits the nationalities of airlines were funded; Billions in support have been given as guarantees to large corporations; Huge spending on health care has been approved at an uncharacteristic rate by governments; And direct and indirect assistance is provided to sectors such as tourism and hospitality.
The debt.to.GDP ratio soared
In the UK, the debt.to.GDP ratio jumped from 84% two years ago to 100% today. This is the average rate today in the eurozone as well, and seven European countries even hold a higher ratio (in Greece the ratio stands at 200%). In fact, apart from wealthy Luxembourg, no bloc country now meets the requirements of the Maastricht Treaty on the public debt of eurozone members: a deviation of less than 3% annually in GDP and a rate of less than 60% of the debt.to.GDP ratio.
The British decision marks a turning point in the policy of dealing with the corona, in which the government does not turn to further deepening the deficit, but raises the money required by raising taxes. It is in line with the early announcement by British Finance Minister Rishi Sonak of his intention to gradually raise UK corporate tax in the coming years from 19% to 23% in 2023.
“It would be a mistake on my part to say that we can fund the rehabilitation (of the NHS system, AA), without making difficult decisions, but responsible for funding the process,” Johnson told parliament last week, before the reform was approved. “It would be an irresponsible move to deal with high costs as a result of deepening the deficit and additional loans,” Johnson added.
In practice, the increase in social security contributions, which is expected to take effect from next year, will be directed in the first years to assistance to the national health system, and then possible funds will also be directed to the nursing system acting on its behalf. The new tax will appear as a separate tax in the list of deductions in salaries, under the heading “Health and Social Care Levy”, and will also apply to income from dividends.
64% of the public support the move
The opposition Labor Party opposed the bill in parliament, arguing it was “too little and too late”. Instead, Labor leader Wall Starmer demanded that a “wealth tax” be imposed on the richest strata in the country. The British Chamber of Commerce also opposed the tax, as did many elements in the Conservative Party and in the press affiliated with the party. A poll published in the British media, however, showed that about 64% of the public theoretically support tax increases in favor of NHS funding.
Internally, the decision illustrates the change the Conservative Party is undergoing under the leadership of Prime Minister Boris Johnson. His government provided an employment safety net for workers (the “German model”) and even for the self.employed for the first time in British history. It also banned the eviction of tenants who did not pay their rent and took further steps, which characterize the economic left. Now, contrary to the image the party has gained over decades of pushing for tax cuts, it is raising taxation and bringing the UK tax burden to 35.5%, the highest in the country since the 1950s. However, this level remains relatively low compared to what is done across the canal.
Some commentators explain the economic measures as stemming not only from the Corona crisis, but from the fact that the Conservatives managed for the first time in the last election to “score” the wall of support for Labor in the north and center of England, amid Brexit. Now, according to information, the party under Johnson’s leadership is trying to retain the support of former center.left voters.
“This is a huge thing we are doing as a party,” a source close to Finance Minister Rishi Sonak, who has been leading the policy for the past two years, told the British newspaper FT, which defined the move as a “watershed” for it.