- Philip Booth, editorial and programme director at the IEA
Japan is facing a consumption tax hike in April, a measure that potentially can derail economic growth and all efforts made by Shinzo Abe and his team. Something similar can happen with the U.K. very soon.
The nation's taxpayers were kept in the dark about the scale of the government spending cuts and tax hikes that are needed to support future pension and social obligations for an ageing population. The government face a dilemma now whether to cut its spending by almost a quarter or implement a significant tax hike in order to meet its long-term obligations. The early made proposal to raise the pension age to 68 by 2046 will not be enough to cope with the challenge. David Cameron has already made an attempt to calm down the population by saying a potential 40p higher rate of the income tax will not be included in the next week's Budget.
With more than 800,000 middle-class professionals demanding a tax cuts, the government is under a real pressure to implement reforms and guarantee a long-term economic stability. Sooner the government starts making reforms to the fiscal policy, more painlessly the situation can be resolved. Analysts are already expressing their concerns about the sustainability of the U.K. recovery, and a potential tax hike can become a massive drag and push the economy back into recession.
© Dukascopy Bank SA