The facts are not in dispute, the worldwide economy is suffering a global crisis not seen since the depression and the Second World War. The effect on Government finances, economic activity are plain for all to see. What is not clear is the longer term effect on the economy.
Over the past 12 years, the consistently low rates of interest and the willingness of bond holders to accept very low rates of interest, even negative interest because of a fear of the volatility of equities, has changed Government thinking about what level of debt can be sustained.
The conventional thinking was that a debt to GDP ratio of more than 80% was extremely damaging to the economy. This contention may be disproved if current interest rates remain low and quantitative easing continues whereby central banks buy up Government debt without inflation growing.
Clearly Covid-19 will have an effect on the tax system, normally after any crisis which has required additional Government borrowing, be it war or recession, taxes rise as the economy recovers. However, as Britain stands at a 40 year high in terms of tax to GDP Ratio, the scope for tax rises may be limited.
There is another budget due in the Autumn which was anticipated to be the one where taxes might rise substantially. However, with the current uncertainties, further tax rises may be kicked into the long grass.
Primondell will be covering all fiscal related developments in webinars and presentations throughout the summer.
