Chancellor Rishi Sunak is reportedly working towards a £337bn spending deficit to cover the costs of the COVID-19 crisis. The astonishing figure is more than £250bn more than Government estimates of £55bn made in the March budget.
In a Treasury document seen by The Daily Telegraph, measures including income tax hikes, a two-year public sector pay freeze and the end of the triple lock on pensions may be required to fund the debt.
According to the paper, British taxpayers could see the base rate of income tax increase by 5p in order to raise between £25-30bn.
If the coronavirus pandemic in the UK worsens the Government reportedly forecast a deficit of £516bn rising to £1.19trillion over the next five years – this would require around £90bn to be raised from taxes.
The document also states even the best-case scenario in which the economy bounces back straight away, would still lead to a black hole to the tune of £209bn.
The paper states: “To fill a gap this size [in the public finances] through tax revenue risers would be very challenging without breaking the tax lock.
“To raise fiscally significant amounts, we would either have to increase rates/thresholds in one of the broad-based taxes (IT, NICS, VAT, CT) or reform one of the biggest tax reliefs (e.g. pensions tax).”
The document has suggested the Chancellor would be willing to accept a “higher but broadly stable level of debt” but could be forced to break a manifesto promise not to hike taxes if GDP continues to fall.
It adds: “As debt is likely to reach significantly higher levels after the crisis, it will be important to stabilise the debt-to-GDP ratio and prevent debt from continuing to grow on an unsustainable trajectory.”
On Tuesday Mr Sunak extended the Government’s multi-billion pound furlough scheme until October.
Around a quarter of the British workforce – 7.5 million people – are being paid 80 percent of their wages up to £2,500 per month by the Taxpayer.
Economists at the Institute for Fiscal Studies estimated the extension alone could cost £10 billion, taking the total amount of support provided by the scheme to around £60bn.
Following the release on the damning numbers, Mr Sunak conceded it is “very likely” that the UK will face a “significant recession”.
He told the BBC: “A recession is defined technically as two quarters of decline in GDP.
“We’ve seen one here with only a few days of impact from the virus, so it is now very likely that the UK economy will face a significant recession this year and we are in the middle of that as we speak.”
Published at Wed, 13 May 2020 21:12:00 +0000