After the Bank of England bought bonds for a short time, the new Chancellor of the Exchequer Hunter overturned almost all the small-scale budget tax cuts, and the former Chancellor of the Exchequer Ricky Sunak succeeded Trass as the new prime minister with the shortest term in British history, the situation in the British financial market finally stabilized.
Judging from the reaction of the capital market, British government bonds expanded their gains, the yield of 30-year British bonds fell sharply, and the exchange rate of the pound appreciated.
The financial market has temporarily stabilized, but this is partly because after the biggest tax cut in 50 years went bankrupt completely, the market expected that Britain would start to increase taxes and cut public spending to ensure the debt fell.
At present, Britain is under great debt pressure. By the end of August 2022, the proportion of public sector net debt to GDP has soared from about one-third before the financial crisis to about the same level as national income (this is the new high of 1960 after World War II), so it is obviously not a sustainable solution to continue to increase lending.
However, it is also difficult to save energy. The British people are deeply mired in the cost of living crisis. According to the data of the British energy regulatory agency, in the second quarter of this year, more than 2 million households in the country defaulted on their electricity bills, breaking the record, and the government still needs to provide energy subsidies for families. In the long run, the aging of Britain also means higher pressure on medical expenditure.
Increasing taxes seems to be the only option. The British government previously imposed a "windfall tax" on oil and gas companies with a tax rate of 25%. It is estimated that the fiscal revenue will increase by 5 billion pounds within one year. Besides, is there room for further tax increase in Britain?
The tax rate in Britain is very low.
Britain's tax burden is not as high as that of other European countries.
In terms of the proportion of tax revenue to GDP, in 20 19, British tax revenue accounted for 33% of GDP, slightly lower than the 36% of the G7 and the 34% of the OECD, and also significantly lower than the 39% of the EU 14 countries (1, the member countries that joined the EU before May 2004).
From the perspective of personal income tax, the tax rate levied on those with the highest income is also low. Among all major European countries, Britain has the highest tax rate of 45%, ranking only 17. The highest tax rate in most European countries is between 45% and 55%, while the highest tax rate in Denmark is only 15%.
On the one hand, Britain's low tax burden is that North Sea oil has brought unexpected wealth to the British treasury.
Beihai Oilfield is a world-famous oil-producing area. 1970-80 During the period of high oil prices, the financial revenue obtained by Britain from Beihai Oilfield once accounted for more than 3% of GDP, which ensured the financial resources of financial expenditure to a certain extent.
On the other hand, Britain's lower tax rate is also to enhance Britain's attractiveness to foreign investment.
From the perspective of balance of payments, Britain is a country with a large current account deficit (the proportion of current account deficit to GDP in the second quarter of this year), and it is very dependent on the net inflow of funds from financial accounts, which makes Britain very dependent on the inflow of overseas funds.
3. How big is the tax increase space?
Britain's lower tax rate has opened up space for its tax increase.
According to the forecast of the British Office for Budget Responsibility, by 2026-27, the proportion of tax revenue to GDP will increase from the current 34%, most of which will come from the tax increase on income and consumption.
The tax increase plan proposed by the government includes:
1 The corporate tax will be raised from 1 9% to 25% from April 2023 (slightly higher than the OECD average);
From April 2022, the national insurance paid by employees and self-employed individuals will be increased, and personal allowances and basic tax rates will be frozen. Under high inflation, this means that more income will be taxed, and the proportion of higher tax rates will increase.
It is worth noting that Britain's tax burden of 36% is still lower than that of most European countries, which means that Britain's tax increase can be even greater.
From the perspective of income tax, because Britain is deeply mired in the cost of living crisis, it is still necessary to be cautious about salary tax increase. From June to August, British wages increased by 6% year-on-year, which is a relatively high growth rate in history, but the wage growth failed to catch up with inflation.
In September, the year-on-year growth rate of CPI in the UK rose to a high level in the past 40 years, but real wages actually declined. In fact, in Sunak's previous campaign, he promised to reduce the basic income tax rate by 65,438+0 percentage points to 65,438+09% in 2024. However, there is still room for improvement in the tax rate of the highest income.
It is also feasible to increase wealth tax. Britain's overall wealth has grown rapidly. In the early 1980s, Britain's overall wealth was three times its output, and in 2020-2 1, it was nearly twice its output.
In sharp contrast, the proportion of wealth tax in GDP only increased from 3% in the same period, which means that Britain can increase the intensity of wealth tax.
Generally speaking, there is a lot of room for tax increase in Britain, so it is necessary to pay close attention to the medium-term fiscal plan that the British government will announce on June 35438+00. It is expected that the British government will explain how to reduce debt and ensure fiscal expenditure.
However, if the financial plan cannot satisfy the market, its political and economic crisis may ferment again.