Senior Tories and business chiefs have told Rishi Sunak that putting up taxes on businesses and pensions to pay huge coronavirus costs could damage the economy.
The chancellor wants to use the autumn budget to start repairing public finances after he said last month that the government had spent almost £190 billion fighting the virus and limiting the economic fallout of the lockdown.
Mr Sunak has identified the pension triple lock, which guarantees annual rises of whichever is the highest of wage growth, price inflation or 2.5 per cent, as one target but faces opposition from Boris Johnson. He is now considering raising corporation tax from 19 per cent to 24 per cent to increase revenue by £12 billion next year, according to The Sunday Times. The Treasury is also considering reforming capital gains tax so that it is paid at the same rate as income tax and is considering the commitment, enshrined in law, that guarantees that 0.7 per cent of income is spent on foreign aid.
The Sunday Telegraph says that Mr Sunak is reviving plans first drawn up by George Osborne, to introduce a flat rate of pension tax relief, in which four million higher-rate taxpayers lose out.
Lord Lamont of Lerwick, a former Tory chancellor, said that Mr Sunak should let borrowing continue to rise until the economy was in better shape, rather than risk hindering growth with tax rises. He said that putting up corporation tax or capital gains tax “wouldn’t be my preferred route” and dropping the triple lock was a better avenue.
David Davis, a former Brexit secretary, said: “At the moment the economy is in such a fragile state that pushing tax rates up is very unwise. It could dampen any economic recovery. The effect of increasing tax rates could reduce the tax take quite significantly.” He said that increasing taxes for the wealthy was not a Conservative response to the crisis.
Roger Barker, of the Institute of Directors, said: “Many companies are saddled with debt and are facing the prospect of significant restructuring in light of the new normal. Adding to the cost burden could hurt investment and jobs over the coming months . . . Lifting taxes on entrepreneurs would be a bitter pill to swallow after so many went without support during the lockdown.”
Mike Cherry, national chairman of the Federation of Small Businesses, said: “Given we’re in a recession the last thing policymakers should be doing is hiking taxes on those we need to invest, create jobs and generate growth over the crucial months ahead. It’s an approach that would send completely the wrong message to those who are out of work and thinking about starting up their own venture.
Adam Marshall, director-general of the British Chambers of Commerce, said that by “piling taxes on to businesses” the government would “hamstring the recovery”. It risked “choking off growth at the crucial moment”, he said.
Damian Green, who served as Theresa May’s de-facto deputy, said that he was wary about any changes to the pensions triple lock. Mr Green told Times Radio: “I would be very wary of the government going down that route. It was a manifesto commitment to keep it. I think this raft of things . . . feels like standard pre-budget Treasury kite-flying to see what people will make of this.”
Stephen Barclay, chief secretary to the Treasury, said that tax was one of “four moving parts” in Mr Sunak’s calculations. “The key objective within the Treasury is to get growth. There is then a balance between the other three moving parts of debt, of spending, spending feeding into that, and tax. And what’s your trade-off then between your spending measures and your tax measures. The real objective is to reduce the economic scarring from Covid,” he said.