As COVID-19 continues to stretch the UK’s public finances, with a deficit perhaps approaching 20% of GDP this year, the autumn budget is expected to close the wide gap between tax revenue and spending.
The impact is likely not only to be economic, but also political. Number Cruncher recently surveyed 1000 UK adults about what choices to make. On whether to prioritize tax increases or spending cuts, there is general consensus, with 59% preferring higher taxes to 16% favoring lower spending, the rest uncertain. and a trend similar to demographics and partisanship.
This kind of consensus on the issue not only runs counter to the recent reaction of conservative supporting media whenthe prospect of tax cuts was raised,Martin Ivens wrote on Monday. It is rare in Britain and represents a radical change from a decade ago and a unique challenge for a Conservative government that tries to maintain its reputation for fiscal probity while managing the economic fallout of the pandemic and holding back the promises made to low-income voters in the north of the country.
In 2010, a GlobeScan poll asked the same question and found that 49% of Britons were in favor of spending cuts, and 36% of tax increases. Since then, two important things have changed. First, David Cameron’s Conservative-Liberal Democrat coalition government has effectively cut spending, with spending as a percentage of GDP falling to 39% from 46% between 2010 and 2019. With utilities under pressure for so long, there is simply less to cut now.
Moreover, and no doubt following long years of cuts which are particularly felt in local public services but also in health care and education, the public has little tolerance for further austerity. In 2018, our survey found that two in three respondents thought the cuts in public services have gone too far.
This, combined with the difficulty for the Conservatives to manage deficits (having repeatedly criticized the opposition Labor Party for its handling of public finances during its tenure before 2010), leaves tax hikes as the default option. And yet, the preference for tax increases over spending cuts is not necessarily a sign of enthusiasm for paying more taxes. The UK might not be like the US in its aversion to big government, but it didn’t suddenly become mainland Europe either.
As such, Boris Johnson’s government could be in political pain due to the fiscal tightening. And now is not the time, with Covid-19 cases on the rise, post-Brexit trade talks on the brink of collapse, an economy in recession and an opposition party under new, more capable leadership against the attack.
In March, as the coronavirus-induced ‘rally around the flag’ was in full swing, our polls gave the Tories a whopping 26 point lead over Labor. In our last poll, that margin was reduced to just four points, with likely voters backing the Tories 42% to 38%, which is within the poll’s margin of error. And most of the groundwork was completed before the Brexit Withdrawal Agreement row.
Worse for Johnson and his more popular Chancellor Rishi Sunak is that some of the most favored budget tightening measures have the biggest potential drawbacks. Among a list of potential tax increases, respondents preferred the so-called sin taxes (tobacco, alcohol), none of which are a significant source of revenue. There was also a preference for capital gains tax (37%), which is a larger source of income, but only partly due to the exemptions. Corporate tax increases (supported at 55%) were the only popular option among those with the potential to generate substantial revenues.
Potential increases in income tax and national insurance (UK social security tax) or value added tax, the still unpopular inheritance tax, duty on fuels and Stamp duties (the tax imposed on purchases of real estate), were all unpopular. And 8% rejected the tax hikes, preferring spending cuts or increased borrowing.
The most popular spending cut is reportedly on the foreign aid budget, supported by 67% of respondents, which has already been sidelined by the government. Notably, 42% thought budgets for the arts should be cut and 30% wanted cuts to the much larger defense budget, although this was a much less popular cut among Conservative voters.
The cut in financial support for coronaviruses, which the UK still plans to make in the fall, was picked by just 10%, along with other options to cut major public support programs – state pensions, local services, education and health – barely registering support at all.
Budgets, for all the attention they receive, seldom lead to substantial increases in support for ruling parties; but they can lead to substantial decreases. Circumstances put Johnson and Sunak in an unenviable position. Their own political fortunes, and that of their party, may well be on the right track.
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
To contact the editor responsible for this story:
Therese Raphael to [email protected]
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