As published in the Daily Telegraph:
Rishi Sunak paves way for tax rises with warning of ‘enormous’ Covid impact on economy
Chancellor says support for businesses would ‘align’ with roadmap out of lockdown.
A tax squeeze could hit within months as Rishi Sunak warned that he will “level” with the public about the challenge the economy faces.
The Chancellor is considering Budget plans that could see personal taxes effectively raised as early as April in a bid to recoup some of the £300 billion cost of dealing with the Covid pandemic.
The move would freeze the point at which people start paying the basic rate of income tax – £12,500 – and the £50,000 threshold at which they begin paying the higher 40p rate for at least three years.
It would raise £6 billion and push 1.6 million people into a higher tax bracket before the election.
Mr Sunak is also expected to use his Budget on Wednesday to signal a rise in corporation tax from 19 per cent to at least 22 per cent, although the increase could be delayed until the autumn or spring and its introduction staggered in order to ease the impact on business.
Warning that Covid has had an “enormous hold on our economy”, the Chancellor said: “I want to level with people about that, about the problem that causes and the challenges it presents us with and be honest about our plan to address those.
“We do have a challenge in our public finances and if we don’t do anything borrowing will continue to be at very high levels even after we’ve recovered from Covid, debt will continue to rise indefinitely and that’s not a good situation.”
However, he indicated that the Budget would see the furlough scheme, bounceback loans, targeted VAT cuts and the stamp duty reductions remain in place until June at an estimated cost of £15 billion.
“We went big, we went early and there’s more to come next week,” Mr Sunak said.
He suggested the support package would be extended to align it with Boris Johnson’s roadmap, which is not scheduled to take the country fully out of Covid restrictions until June 21 at the earliest.
“When it comes to support in general, I said at the beginning of this crisis that I would do whatever it took to protect people, families and businesses through this crisis and I remain completely committed to that,” he said. “The Prime Minister, in the roadmap, set out a path for us to recover and reopen, and I want to support people and businesses along that path.”
Hospitality industry sources were optimistic from talks with the Treasury that business rate relief and VAT cuts for pubs, restaurants and clubs could be extended beyond the June 21 deadline and into the New Year.
But this could be stymied by Treasury concerns that other retail sectors including supermarkets, which have profited in the pandemic, could not legally be excluded from any support package.
Some 45 Conservative MPs from Northern “Red Wall” seats have urged Mr Sunak to make “a bold move to reduce business rates” on retail as soon as possible. He also faces a kickback from some Tories over a rise in taxes which they fear could jeopardise the recovery.
The former Brexit Secretary David Davis said: “If the tax burden goes up, I would find it very hard to believe that would help the recovery… If they increase the tax burden, it would be very difficult for me to vote for it.”
Robert Halfon, the Tory chair of the education committee, said: “We have got to be the party that cuts the cost of living. That is what one of the fundamental objectives of levelling up must be. I don’t have a problem with them taxing multimillionaire corporations. Tax millionaires, but not millions of ordinary folk.”
Meanwhile, Anneliese Dodds, the shadow chancellor, has warned that a Government scheme to help first-time buyers onto the housing ladder will only inflate the UK’s property bubble further.
She said the plans to encourage banks to issue 95 per cent mortgages will help a “tiny proportion of Generation Rent” while fuelling the housing crisis by making properties more expensive.
Plans to be announced in the Budget will see the Treasury underwrite 95 per cent mortgages for homes worth up to £600,000 in an attempt to help renters onto the housing ladder.