‘Reality check’ time: Mel Stride thinks Boris Johnson will break triple tax lock promise
The UK needs a “reality check” when it comes to public spending levels and Rishi Sunak is almost certain to break the Tories’ triple tax lock election pledge, according to the chief of Westminster’s Treasury committee.
Conservative Central Devon MP, and chair of the Treasury Select Committee, Mel Stride told City PM in an interview that there needs to be a more “holistic” approach of the government’s coronavirus response, which must include listening to more economists.
He also said the UK still had not come to terms with the tough fiscal decisions the Treasury will have to eventually make as the UK’s yearly deficit is predicted to hit £350bn this year – 12 times pre-Covid estimates.
“There has to be a reality check in terms of what the public finances can stand in the long term, but I don’t think we’re in the danger territory quite yet,” Stride says.
“There will be a moment when – and I don’t think it will be for a year or two, but I do think it will be during this parliament – the chancellor is going to stand up and say ‘these are the tough decisions we’re going to have to take’.”
The government has spent more than £200bn as a part of its coronavirus response, including up to £10bn yesterday when it expanded business support for companies facing Tier 2 restrictions.
The Office for Budget Responsibility (OBR) now puts the UK’s debt pile at £2.06 trillion – 103 per cent of yearly GDP.
Speculation was rife earlier this year that the chancellor would hike capital gains tax and inheritance tax to claw back some of the deficit, however the Treasury committee chair said these sort of measures would be entirely inadequate.
He believes the government will likely have to take on the three largest sources of government revenue – income tax, VAT and national insurance – and therefore break Boris Johnson’s triple tax lock election promise.
Johnson denied at a Liaison Committee meeting this year that he would break any of his election manifesto commitments, including the triple tax lock.
“Given where we are, tax is going to have to play a significant role in getting us through and dealing with the deficit in the longer term,” Stride says.
“It’s hard to believe that you can’t do anything around those – that you can avoid doing anything around those [three] taxes…you have to look at the broad-based taxes to do the heavy lifting.
“What you’ve got to play with are rates, thresholds and exemptions. For VAT there is a threshold in that, but there are also a whole swathe of areas not hit by VAT so there are a lot of ways of doing it.”
Stride says the idea, proposed by some, that the government could pay for its Covid spending by targeting the US’ digital giants is unrealistic.
“People will often say things like ‘you need to tax digital businesses – the Googles, Amazons, Facebooks etc – that’s how we should be plugging the gap’,” he says.
“We do have a digital services tax, but even if you had a really good system that taxes appropriately the value of their business in the UK it would be a drop in the ocean as to what is required.”
While Stride has been steadfast in his scrutiny of the Treasury throughout the pandemic, he still has high praise for Sunak.
He believes the former Goldman Sachs investment banker has “galvanised the Treasury and HM Revenue and Customs (HMRC)” into “acting at scale and at pace” throughout the crisis.
“I think he’s probably been handed, outside war time, possibly the toughest challenge any chancellor has faced,” he says.
“An important characteristic is his ability to iterate – he’ll come out with something and he’ll come back and fine tune it and come back to parliament and fine tune it again. He’s been nimble.
“But, as he has always said, and this is where it will get more difficult, you can’t save every job, you can’t save every business. We’re in much more difficult territory than we were a few months back and it’s going to be more difficult for him to perhaps come through the next phase looking a good as he has through the first.”