TAX RISES PAINFUL CHOICES AHEAD FOR CHANCELLOR

Chancellor Rishi Sunak is by far the most popular member of a Government struggling to get a grip on the Covid-19 crisis after a raft of giveaways to support the economy through the pandemic.

But that sheen could soon be tarnished as he seeks to claw out of the fiscal crater left by the virus, with painful choices ahead in the autumn Budget.

Mr Sunak’s revenue-raising options are hemmed in by the Prime Minister’s reluctance to either soak the Conservatives’s traditional supporters or return to the era of austerity.

A 2019 manifesto commitment not to raise the rate of income tax, national insurance and VAT under the “triple tax lock” is problematic, as these are the Treasury’s three biggest earners.

In 2018-19, the last full tax year before the pandemic, the trio accounted for £460billion of £735 billion in overall revenues.

Hence speculation that companies will bear the burden through corporation tax, with the Treasury also looking to squeeze the pips on capital gains tax and slash back pension reliefs. But the sums involved are small in the context of the public finances.

Corporation tax only brought in £56 billion in 2018-19, and CGT only £9.5billion.

Chris Sanger, head of tax policy at EY, said: “If you’re looking to make sizable increases in taxation, it is not obvious that corporate taxes would be your tax of choice. We get two thirds of our total taxes from national insurance, VAT and income tax.

“By the time you add in duties that rises to about three quarters, so anything other than those is only going to be providing a little bit of additional revenue.”

Using “big three” tax rises looks inevitable for Mr Sunak at some point if he is determined to raise revenues.

Cynics will note the manifesto commitment only refers to tax rates, and not the threshold at which they are applied. Tens of thousands of taxpayers could see bills rise through socalled “fiscal drag” if income tax thresholds are not lifted in line with inflation – raking in billions of pounds more for the Treasury.

‘Anything other than national insurance, VAT and income tax is only going to be providing a little bit of additional revenue’