Most accept increasing income tax is the price that must be paid, but there is little support for changes to the state pension triple lock and pension tax relief.
The majority of UK workers are willing to stomach an income tax rise in order to help pay down the escalating costs of fighting coronavirus.
According to a survey by pension provider AJ Bell, which had 2,001 respondents, over three-quarters (77%) accept that increasing income tax is the price that must be paid to reduce the expected £300 billion increase in UK government debt following the lockdown of the majority of the economy.
In terms of the amount UK workers would be prepared to lose from their salaries, on average those surveyed arrived at 3.9% as the average income tax increase they would accept. Almost one in five (19%), though, were prepared to pay an extra 5% or more in income tax.
Tom Selby, senior analyst at AJ Bell, comments: “While policymakers will need to be careful not to stifle an economic recovery by hiking income tax rates too much, there appears to be general acceptance that the Covid-19 costs will need to be repaid and that tax rises are therefore a necessary evil.
“Given battling this pandemic has required a collective effort, it would make sense for all of us to help foot the bill. Indeed, this may be one of the few times in history where a government could hike income tax – perhaps via a time-limited Covid-19 surcharge – without necessarily wrecking its election chances.”
AJ Bell’s survey also sheds light on people’s attitudes to other potential tax rises. Dividend tax and capital gains tax jointly scored highest (37%) as the taxes those surveyed would be most willing to see increased, to help pay down government debt.
Conversely, there was little support for the removal of the state pension triple lock (10%) and restriction of pension tax relief (9%).
There have been calls for the state pension triple lock to be reformed to help pay for the government’s response to the coronavirus crisis. Social Market Foundation, a think tank, argues that coronavirus costs should be spread across generations.
Such sentiment is echoed by Faith Glasgow, editor of Money Observer, who notes in her latest monthly column that “the triple lock should go, in the interests of the economy and of fairness”.
But, as things currently stand, the government seems committed to the triple lock guarantee. When prime minister Boris Johnson was recently asked in parliament whether “categorical assurance” could be given that the triple lock along with other manifesto pledges would be protected, he responded: “We are going to meet all of our manifesto commitments, unless I specifically tell you otherwise.”
In regards to pension tax relief, Richard Murphy, a prominent economist from City University, recently called for a package of wealth taxes, including removal of the higher-rate tax reliefs for pension contributions.
On the one hand some pension experts point out that any changes to the existing pension tax relief system would be complicated to put into practice and take years to properly implement, but others maintain that higher rate pension tax relief is “living on borrowed time”.