Sunak warns of ‘tough choices’ on tax rises

Increases may be needed in medium term for ‘strong and sustainable finances’, Chancellor suggests

RISHI SUNAK has said “tough choices” will need to be made on tax increases, but it was still his “ambition” to keep his party’s pledge on the triple tax lock.

The Conservative manifesto promised not to raise income tax, VAT or National Insurance in this parliament. Yesterday, the Chancellor said that “strong and sustainable public finances are important” and suggested tax rises will be needed in the “medium term”.

Speaking to the treasury select committee a week after he delivered his mini-budget, Mr Sunak said: “There are tough choices ahead. That is clear.”

Bringing public finances back to a sustainable footing was “personally important” to him, the Chancellor said.

Asked whether he planned to raise taxes in the autumn Budget, Mr Sunak said he would not comment on future fiscal policy, but added: “More broadly, I would agree that strong and sustainable public finances are important. It’s something I believe in.” He said it was “something that, over medium term, we will want to return the public finances to”, though he stressed that the “exact shape and plan” would have to wait for future budgets.

Asked whether he would maintain the triple tax lock, Mr Sunak said: “Our ambition is to deliver all priorities that we set out”, but declined to comment on future tax policy.

Last week Boris Johnson reaffirmed his commitment to the pledge. Asked about the comments, Mr Sunak said: “I always agree with the Prime Minister.”

The Chancellor has so far spent more than £188billion of public money on measures to keep the economy afloat during lockdown. In his mini-budget, Mr Sunak focused on stimulating an economic recovery with another £30billion of measures. Even planned ways to tighten spending, such as temporarily scrapping the pensions triple lock, were shelved. This week, the Office for Budget Responsibility said tax rises or spending cuts were “likely” in order to put the country’s public back on a sustainable path.

The OBR warned yesterday that the Government faced a gap of at least £60billion in its finances following an “unprecedented in peacetime” rise in borrowing to £372billion.

The Treasury has asked the Office of Tax Simplification to carry out a review of capital gains tax, prompting experts to say a tax rise may be in the works.

Mr Sunak told MPS the review was “a reasonably business-as-usual practice”.

He said it was “appropriate” to look at the pensions triple lock, citing concerns that a sharp rise in wage growth when furlough ended would give pensioners a disproportionate increase.

The Chancellor also said he agreed with the OBR’S assessment that the Government must not assume interest rates would remain low forever.

Andrew Bailey, the Governor of the Bank of England, last night told Tory MPS that he expected borrowing costs to remain low for some time, suggesting there was capacity to borrow more.

An MP who was in the meeting with the 1922 Committee told The Daily Telegraph: “One of his main points was he felt interest rates would be low for a long time to come”. Another MP said Mr Bailey “seemed very relaxed” about high borrowing levels.

Any lingering hopes that the economy might enjoy a so-called V-shaped recovery from the devastation wrought by the pandemic response have been snuffed out this week. The May GDP figures showed only a modest increase as restrictions were eased after the record slump in April. Meanwhile, the Office for Budget Responsibility (OBR), which had initially forecast a speedy bounce-back, issued a gloomy central prognosis confirming the most precipitate fall in national wealth for 300 years, but anticipating a far slower revival.

Much depends on whether a vaccine can be found and how quickly, allowing pre-covid activity to be resumed. But by then, many once viable businesses will have folded, with significant job losses, possibly as many as four million.

Rishi Sunak, the Chancellor, appeared before the Commons Treasury select committee yesterday to give further details of the Government’s strategy for countering the economic impact of the shutdown. His assessment was no more optimistic than the OBR’S; indeed, for a politician it was remarkably frank. But candidly acknowledging the scale of the calamity is not the same as having a plan to deal with it. In the short term, Mr Sunak’s principal aim is to avert a rapid increase in unemployment by safeguarding as many jobs as possible.

Much of the Government’s political, as well as the nation’s economic, capital is invested in the jobs plan unveiled in last week’s summer statement. The Chancellor forcefully defended the various schemes he announced, such as the “eat out to help out” discount, following criticism that they might have been better targeted. Mr Sunak’s impressive grasp of detail and empathy for the people hurt by the lockdown have made him the Government’s most popular minister. But it is what he does next that will determine the fate of the country.

The Chancellor refused to be drawn on the missing piece of the economic jigsaw – fiscal policy. How will the deficit be brought down and the credibility of the public finances restored? This will not be addressed until the autumn Budget, when the trajectory of the recovery will be clearer. Mr Sunak said the public finances will need to be put on a “sustainable footing” over the medium term, although it should not be read into his reticence to answer questions that taxes will have to rise to plug the fiscal gap. But he didn’t deny it, either.