Sunak told his finance plans ‘not deliverable without pain’

RISHI Sunak has been warned his plans to address the UK’s battered public finances following the coronavirus crisis “do not look deliverable” without “considerable pain”.

Paul Johnson, director of the Institute for Fiscal Studies (IFS) think tank, said it remained to be seen after Wednesday’s Budget how the Chancellor would fix the problem.

He said Mr Sunak’s plans left him looking more like Scrooge than Santa, with fiscal tightening of almost £50 billion relative to his pre-pandemic plans of March, 2020. Mr Johnson also said two big tax increases announced on Wednesday were “screeching U-turns on Conservative policy over the last decade”, with a rise in corporation tax of “historic proportions”.

Corporation tax will increase from 19% to 25% in 2023, raising £17.2 billion in 2025-26, although only firms with profits of £250,000 or more will pay the full rate, Mr Sunak said. There will also be a “super deduction” for companies when they invest, reducing their tax bill by 130% of the cost.

Mr Sunak said borrowing this year was £355bn, 17% of national income – the highest level since the Second World War – while next year it is forecast to be £234bn, 10.3% of gross domestic product (GDP). The Budget measures will see borrowing fall to 4.5% of GDP in 202223, 3.5% in 2023-24, then 2.9% and 2.8% in the next two years.

But in a “tale of two budgets”, as Mr Johnson described it, the Chancellor said he would extend the furlough scheme and Universal Credit increase as part of a £65bn lifeline for the economy. But income tax thresholds will be frozen, meaning more than a million extra people will be dragged into paying it as wages increase. Inheritance tax thresholds, the pensions lifetime allowance, and the annual exempt amount in capital gains tax will also stay at current levels until April, 2026.

Mr Sunak earlier defended plans to freeze income tax thresholds, describing it as “progressive” taxation. He told Sky News: “Freezing personal tax thresholds is a progressive way to raise money. Crucially, what people need to understand is that no one’s take-home pay that they have today is affected or lowered by this policy.

“What it does do is remove the incremental benefit that they might have experienced in future as inflation fed through to their wages.

“Also, crucially, those on higher incomes are affected more by this policy... contributing, I think, 15 times more than those on the lowest incomes.”

Torsten Bell, chief executive of the Resolution Foundation economic think tank, said the Budget marked a “very big change around” in the Tory approach to taxation. Business groups had not complained too strongly because the tax rises were still some way off, he said, adding: “I would be amazed if in two years the CBI is not saying ‘it’s absolutely bonkers that we are raising corporation tax to 25%’.”