Treasury sources have confirmed that the Chancellor is plotting a temporary rise in the nation’s tax burden starting with a series of increases in levies on the wealth of the better off in his autumn Budget. Tax hikes on company profits and capital gains have been floated along with scrapping pension perks for higher earners in a bid to raise around £30billion. Mr Sunak will promise that the short-term pain, needed to reduce the Treasury’s eye-watering £2trillion debt, will end by the time of the next election due in 2025.
One Whitehall insider said the increase will be spread over the “arc of the parliament” to deliver tax cuts in 2023 or 2024.
But Tory backbenchers and party donors are in uproar about the plan.
Former Tory Cabinet minister David Davis told the Daily Express: “Raising taxes now won’t work and it is not Conservative. The people it will hurt most are Conservative voters, old and new.”
The senior MP, who is threatening to lead a revolt against the Budget, said: “We are already at the highest tax burden for 30 years.
UK news: Rishi Sunak warned
UK news: David Davis is threatening to lead a revolt
“High taxes suppress economic activity, investment and employment.
“The smarter approach is to borrow cheaply as we look to spread the cost of the crisis, as in wartime, over 50 years or thereabouts and grow the economy as quickly as possible.”
Mr Sunak agreed a plan to hike taxes before reducing them at the next election with Boris Johnson last week.
The Chancellor spoke about scaling the rises over the “arc” of the parliamentary term when the pair met a group of Tory MPs elected at last December’s general election in the Commons on Wednesday.
He promised he was not plotting a “horror show of tax rises with no end in sight.”
Rishi Sunak: The Chancellor will unveil changes tomorrow
Mr Sunak also told the MPs that ministers had to be “honest” with voters about the colossal scale of the impact of the coronavirus crisis on the public finances.
Whitehall insiders say the Prime Minister was hit like a “bolt from the blue” by leaks about Treasury preparations for the Budget, expected in November.
He is said to agree with the Chancellor’s view that the Government needs to get a grip on the public finances.
In their discussions last week, the Chancellor told the Prime Minister that his aim is for the Treasury to be in a position to cut taxes by the next election.
He also argued that the Government must keep economic credibility to have any chance of winning at the polls.
Mr Johnson is understood to have indicated he will not sanction any break of his Tory election manifesto “tax lock” pledge not to hike income tax, national insurance or VAT.
Rishi’s tax hike Budget to be ‘sorry day’ for Chancellor [Report]
Tax hike WARNING: Britons could be hit with £400 a year bill in Budget [Update]
Sadiq Khan’s calls to extend the furlough scheme lambasted by expert [Latest]
Rishi Sunak: Party donors are in uproar
Downing Street is also ruling out a rise in fuel duty at the Budget and Mr Sunak is thought to be against raising inheritance tax because of the complexity involved in raising a relatively small amount of revenue.
But the Chancellor is said to be pressing for an end to the “triple lock” on state pensions which links annual rises to whichever is highest out of inflation or earnings at a minimum of 2.5%.
Other tax hikes under consideration include raising capital gains tax at the same rate as income tax and increasing corporation tax from 19% to 24%.
The higher rate of tax relief on pensions could also be scrapped to save around £10billion a year.
Under the move, higher income earners will only get relief at 20% on their retirement savings rather than 40% or 45% as at present.
Tory donors are reported to be furious about the move. Some have privately warned party chiefs they will “turn off the spending taps” if the tax hikes go ahead.
A Government spokesman insisted tax issues were a matter for the Chancellor at the Budget.
Measures to support the economy through the coronavirus lockdown including business loans, paying workers on “furlough” and the “Eat Out To Help Out” discount scheme have cost more than £200billion at time when the economic slowdown has led to a slump in Treasury revenue.
A total of £522million has been claimed by pubs, restaurants and cafes to fund discount meals during August.
Last week the Treasury launched a new “Kickstart” scheme costing £2billion to fund work placements for workers aged under 25.
Rishi Sunak: Changes will be made in order to help the economy
Responding to reports of a tax-hiking Budget, Labour’s shadow chancellor Anneliese Dodds said: “The UK is mired in its worst recession in 300 years. With jobs being shed at an alarming rate, the Conservative government should be doing everything it can to protect as many as possible.
“Instead, the Tories are floating a fiscal agenda of tax rises and more public spending cuts. That would choke off our national recovery at the moment when the economy is at its weakest, just so they can cut taxes before the next election.
“They’re playing politics with people’s jobs and livelihoods.”