Tax increases could stifle SME growth and be detrimental to the economic recovery in the UK, investment firm, IW Capital, has warned.

According to recent reports, the Government is planning to introduce a range of new tax increases to help pay for the spending incurred by coronavirus and the subsequent response.

The Times has indicated that senior government officials and business chiefs have told Chancellor, Rishi Sunak, that putting up taxes on businesses and pensions to pay for coronavirus costs could damage the economy.

However, reports also suggested that Sunak wants to use the autumn budget to start repairing public finances, after he revealed last month that the Government had spent almost £190bn in tackling COVID-19.

Among the levies in line for change are capital gains tax, inheritance tax and pension tax relief, while corporation tax may also see an increase from its current level of 19% to 24%.

IW Capital suggested that the huge amount of money spent during the pandemic has become a problem that needs addressing for the Government, but added that the country cannot afford to look at public finances with a “short-term view”.

“Creating an eco-system for businesses to thrive, grow and hire more workers is a sure fire way to increase tax receipts in the long run,” commented IW Capital CEO and founder, Luke Davis. “While immediate tax increases give an immediate result, it is often lower taxes that see long-term success.

“For example, when the EIS income tax relief was extended from 20% to 30% in 2011, the amount invested in small companies through the scheme saw a tremendous jump. This is the kind of change that should be considered. Encouraging private investors to take a risk on a company with the potential to grow and aid economic recovery.

“The SME economy is one of the most important and exciting assets the UK has. SMEs make up 99% of businesses in the private sector and employ over 16 million people. As well as this it was an area creating jobs rapidly before lockdown measures came into effect, returning to this will be what helps us recover.”

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