Tory tax row as public debt hits £2trillion

A TORY row has broken out over whether tax rises are needed to plug the huge gaps in the public finances as UK debt rose above £2trillion for the first time.

Boris Johnson is resisting tax rises to restore public finances as it is claimed the Treasury is piling pressure on Rishi Sunak to claw back some of the billions spent propping up the economy and funding manifesto pledges as he prepares for the Autumn statement.

Some Tories believe spending cuts will not be sufficient to plug the hole and tax rises will be needed in the medium term, while others are pushing for tax cuts to help revive the economy.

As figures yesterday showed the UK heading for a £350billion deficit from the Covid-19 pandemic rescue package, the Chancellor warned the Government faced “difficult decisions”.

Mr Sunak said: “Today’s figures are a

‘Boris wants to resist tax rises but the Treasury is putting a huge amount of pressure on Rishi’

stark reminder that we must return our public finances to a sustainable footing over time, which will require taking difficult decisions.”

A senior source said: “It is a reminder fiscal responsibility and sustainable public finances still exist. He is committed to moving back to that as soon as we can.”

Norman Lamont, the former Chancellor, said although it was “inevitable” the deficit should rise like other countries, “the idea that low or negative interest rates means we have discovered a magic money tree is dangerous.

“At some point down the road, there will have to be strong fiscal action with either tax increases or restrictions on spending.”

A senior Tory said: “Boris wants to resist tax rises but the Treasury as a department is putting a huge amount of pressure on Rishi to claw back some of the money spent on furlough.” A confidential Treasury assessment of the coronavirus crisis, revealed by The Daily Telegraph in May, estimated it would cost £300billion this year and could require measures including an increase in income tax, ending the triple lock on pension increases and a twoyear public pay freeze.

Dominic Cummings, the Prime Minister’s chief adviser, favours spending cuts rather than tax rises and is eyeing up defence spending, according to a Tory source.

“Dom doesn’t want tax rises, he wants spending cuts. As part of the civil service reform, he’s looking at department budgets,” said the source, who claimed that Ann Marie Trevelyan, the International Development Secretary, could be in line to replace Ben Wallace at defence to lead the spending review.

However, economists from the Institute for Fiscal Studies and Resolution Foundation said the austerity cuts of the past decade had left little room for manoeuvre on spending cuts and tax rises were more likely to be needed to plug the holes in public finances.

“The politics of the first half of this decade will be about how much and which taxes to raise to pay for the lasting effect on public finances of the Covid crisis,” said Torsten Bell, of the Resolution Foundation.

Separately, it emerged last night that Mr Johnson and Mr Sunak were at odds over plans to reform pensions.

Mr Sunak is understood to be considering a suspension of the pensions triple-lock but Mr Johnson “hates” the idea because it would mean breaching a manifesto commitment, The Times reported.

A Government source told the newspaper: “He really doesn’t want to do it. The optics are terrible for older voters.”