Rishi Sunak has laid the groundwork for tax rises after he said it was time to “level with people” about the problems facing the economy.
The chancellor confirmed yesterday that he would extend coronavirus support in the budget on Wednesday but warned that the pandemic had an “enormous hold” on the economy.
He repeatedly declined to deny telling Conservative MPs that he was planning to raise taxes in the short to medium term in order to be able to cut them again before the next election.
Sunak is expected to announce a pathway to increase the rate of corporation tax from 19 per cent to 25 per cent over this parliament.
He is likely to announce a “stealth tax” by freezing the lifetime allowance on pensions, the amount people can build up in their pension pot before incurring punitive charges.
The chancellor is also expected to put on hold the £50,000 threshold for the higher rate of income tax in a move that will raise £1 billion as 800,000 people are dragged into paying the 40p rate.
On Sophy Ridge on Sunday, broadcast on Sky, he said: “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.”
He added: “I think in the short term what we need to do is protect the economy and keep supporting the economy through the road map, and over time what we need to do is make sure our public finances are sustainable.”
Sunak confirmed that he would extend government coronavirus support such as the furlough scheme.
“The right thing to do right now is to keep supporting the economy and you’ll see that in the budget,” he told the BBC’s Andrew Marr on Sunday. “We went big, we went early and there’s more to come.”
Pressed on the claims that he told MPs in his party that he intended to cut taxes again before the next general election, he told Sky: “If you’re asking do I want to deliver low taxes for people, of course I do.”
He later told Marr: “I don’t recognise that.” Labour accused him of “playing politics with the recovery”.
David Davis, the former Brexit secretary, said raising taxes and cutting them later was “not a wise political strategy, and certainly not a wise economic strategy”. “People tend to view late tax cuts with some degree of cynicism.”
Times have changed. Budget leaks are far from a sackable offence now as a steady stream of stories emerge from government. Here we round up the key measures so far.
The rate at which businesses pay tax on their profits looks certain to rise from 19p in the pound. The real question is how far the chancellor will go. Some speculate he will limit the increase to 23p by the end of parliament but others say he will go to 25p.
Income tax thresholds
Rishi Sunak looks set to raise £6 billion by freezing for at least three years the point at which workers pay the basic rate of income tax at £12,500 and the £50,000 threshold at which they pay the 40p rate. That would push 1.6 million people into a higher tax bracket before the next general election.
Weekend reports suggest that the chancellor will consult on plans to tax internet retail more heavily, including a green tax on every internet delivery.
National Insurance contributions paid by the 4.5 million self-employed may rise with Sunak reported to believe they should pay more after getting support during the pandemic. Similar plans were dropped in 2018.
Another stealth tax in Sunak’s sights is a freezing of the lifetime allowance, the amount people can save into their pension before incurring tax charges. More people could face a 25 per cent levy on any additional income from their pot.
Furlough and other Covid support
Reports abound that Sunak will extend the furlough scheme until June and announce the continuation of business rates relief beyond March. He could also announce the fourth self-employed income support scheme grant.
House hunters will be able to get a mortgage with a deposit worth only 5 per cent of the value of a property under a plan to revitalise the “Help to Buy” scheme. The Treasury is to guarantee part of the loans to encourage banks to offer the riskier mortgages on properties worth up to £600,000.
A fund of £5 billion in cash grants is to be announced for shops, pubs, restaurants and personal care services such as hairdressers that have been hit hard by the pandemic. About 700,000 firms will be eligible for up to £18,000 each.
National infrastructure bank
The chancellor will announce £22 billion — £12 billion of capital and £10 billion of guarantees — for an infrastructure bank before the UN climate change conference in Glasgow in November. Bolstered with cash from private sector investors this will fund £40 billion of infrastructure projects.
Reports suggest that Sunak will revive “Eat Out to Help Out” in some form.
The current stamp duty holiday is due to expire on March 31. The chancellor is set to extend this deadline for three months.
Universal credit uplift extension
The £20 “temporary” uplift in universal credit is to continue for another six months.
Green savings bond
People can invest in the world’s first sovereign green savings bond. The bond will be offered by NS&I, which issues Premium Bonds, and will invest £20 million in offshore wind, £70 million in long-term, low-carbon energy storage and £4 million to boost green-energy crops.
Beer duty reform
The prime minister and chancellor have both hinted that they may reform beer duty in favour of pubs to prevent them being undercut by supermarkets.
Sunak is expected to unveil a new fast-track technology visa scheme for start-ups. Migrants with a job offer from a tech company can get on a fast track for a visa.