When all this Corona-virus first kicked off, we were very relaxed about it and thought that the indestructability of advanced and ultra-modern medicine would soon see the virus off and the first time we seriously realised that something was seriously amuck was when UK Government borrowings went into overdrive!
Since then, we estimate the Government has (or will) borrow up to £330 billion to get us through this crisis – or 40% more than what it would normally be expected to spend in a year (2019-20 the UK government is estimated to spend around £840billion in total)! Now this is a big number so let’s get some perspective. High Speed Rail (or HS2) was first announced in 2009, since then successive governments have argued about the sheer cost of it. Initially it was to cost around £60billion but has since risen to just shy of £110billion. Given the arguments have gone on for over a decade with little progress the fact the UK Government is able to ramp up spending massively in weeks gives some insight into what is going on! Obviously, everyone agrees this is 100% the right thing to do!
Being practical, how are we going to pay for all this? After all, if we do nothing our children and grand-children (and great-grandchildren) will be saddled with the debt for years. When a government has debt, current taxation needs to be used to pay the interest owed on debt and therefore is taken away from being properly spent. One way to deal with excessive debt is austerity or reduced government spending. Given the Conservative government won their election on an end to austerity this will not be possible meaning the only real choice is taxes will need to rise!
When business taxes rise, it tends to reduce the money available for investment and when personal taxes rise, it reduces the amount people have to spend in the real economy – either way possibly harming the economy and therefore any government will need to tread carefully indeed.
So, in a world of rising taxation, what can be done? As always simple things like maximising pensions allowances, using your ISA’s or even using investments that can take advantage of any unused Capital Gains Tax allowances. Moving on, a Venture Capital Trust or Enterprise Investment Scheme could be suitable but as always needs to be tailored to your circumstances!