Philip Hammond Warns Rishi Sunak That "Excessive" Tax Rises Will "Choke" The Economy
Former Chancellor Philip Hammond has warned the government that sharp tax rises will hamper the UK's economic recovery, as Rishi Sunak prepares to reveal his Budget on Wednesday.
Hammond told Times Radio on Tuesday that while he supported the government raising some tax rises in the "medium term" to help plug the financial gap caused by the pandemic, such as a “sensible, proportional” increase to corporation tax, they would hinder economic growth if too aggressive.
He urged Sunak to take gradually increase corporation tax “a bit” above its current rate of 19%, telling Times Radio: “I’d be very surprised if the chancellor decided to do a one, big step increase in corporation tax”.
Sunak will reveal his plan for repairing the UK’s finances on Wednesday afternoon amid reports that he will increase corporation tax and could target other taxes like Capital Gains too.
Over the weekend the Chancellor stressed that he wanted to "level with people" about the decisions he would have to make to repair the economic damage done by the pandemic.
Business Secretary Kwasi Kwarteng this morning helped pave the way for Sunak to raise taxes in his Budget, telling LBC Radio that while he personally was a “low-tax” Conservative, “obviously we have to balance the books over time”.
Hammond said he supported some tax increases but warned the government not to go too far.
“If you push corporation tax up too far, if you tax entrepreneurs starting new businesses too heavily, if you take too big a proportion of workers’ pay, then people will be less committed to doing all the things – founding businesses, creating jobs, taking on extra hours over times – than they otherwise would,” Hammond said.
“And that will have a negative effect on economic growth”.The former chancellor added that Boris Johnson would inevitably have to cut public spending in order to reduce the country’s “eye-wateringly large deficit”.
“We have got to get the balance right between restraining public spending and increasing taxes. We are going to have to do both and anyone that says that the challenge can be met only by increases in taxation, or only by cuts in spending, is not being straight with people," he said.
"There are two sides to this coin: you can’t just deal with it through increasing taxation because if you do that, you will have an impact on the economy’s ability to grow.
"And in the long run, the way we solve all of these problems is by stronger economic growth and we don’t want to choke that off with excessive taxation".
The Prime Minister should consider shelving plans for “capital spending” on major infrastructure projects, Hammond said, telling Times Radio that some policies included in the Conservative party’s 2019 manifesto might no longer be “immediately affordable”.
“This government came into office with a series of announcements about increases in public spending. They were perfectly well intentioned and a government that wins a significant majority in an election is entitled to make policy decisions like that,” Hammond said.
“But the world has changed around us because the Covid crisis and some of those significant increases in public spending are now not affordable until we have sorted out the debt challenge and the deficit challenge”.