Budget 2021: Expert explains ‘fiscal drag’
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Rishi Sunak announced a swathe of new policies aimed at boosting the British economy to push finances back to a healthy state following the coronavirus pandemic. The Chancellor spent almost £300billion over the past 12 months to help UK businesses survive through lockdowns and social distancing restrictions. Sky News correspondent Ed Conway noted however the new measures will still leave people paying up more in taxes despite no effective hike being announced.
Mr Conway said: “It’s what economists call fiscal drag, it’s basically when you leave all those tax-free allowances, all of those thresholds where you start paying tax, whether it’s VAT or income tax…you leave them in the same place.
“So you don’t update them as people’s earnings go up, as inflation goes up. And it means more people end up paying tax. Fiscal drag.
“Gordon Brown did it and got a lot of stick from the Tories for doing it back in the day. A lot of those taxes are going to come un through fiscal drag.”
He continued: “
Sky News reporter Sam Coates noted the announcements included a “super deduction” for businesses, meaning owners will be able to offset up to 130 percent of their expenses over investment and necessary purchases.
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He said: “It looks as if it cost around £12 billion a year. So Rishi Sunak is betting the farm on a huge package of assistance for businesses in the near-term.
“But, of course, there’s a big quid pro quo because one of the two big tax rising measures that he’s announced today is a corporation tax rise – he’s ripping up political strategy by David Cameron and George Osborne.
“They’re going to start rising again but not yet, just a bit closer to the next election.”
More to follow…
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