Tue, 23 April 2024

Newsletter sign-up

Subscribe now
The House Live All
By Dr Vivek Murthy
Why system change is critical to harness the potential of gene therapies Partner content
By Pfizer UK
How do we fix the UK’s poor mental health and wellbeing challenge? Partner content
Press releases

Rishi Sunak Accused Of Not Being As Honest As He Claims On Tax Hike Plans To Fix Post-Covid Economy

Rishi Sunak has repeatedly claimed he is being 'honest' with the public about how he will fix Britain's finances (Alamy)

5 min read

Rishi Sunak’s repeated claims he is being “honest” about plans to rebalance the post-Covid economy have been questioned by a leading economic think tank.

Throughout his Budget speech, and then during a Downing Street press conference, the Chancellor talked about how he wanted to be open with about plans to fix the public finances after a period of colossal spending due to the pandemic

But the Institute for Fiscal Studies (IFS) suggested “there are limits to how far he wants to level with us” after Sunak froze personal allowances rather than make explicit rises in income tax.

The think tank is sceptical about Sunak’s projections for public service spending, suggesting future totals have been set “implausibly low so as to flatter the public finance forecasts”.

They also criticised the plans to not include companies with small profits in the increase in corporation tax, saying “it introduces unnecessary complexities and distortions into the tax system”.

Speaking into the camera at tonight’s televised briefing, Sunak told viewers: “I want to be honest with you about the problems we face and our plan to fix them.”

He said this year, and next, the government is spending £407 billion to support people and businesses through coronavirus, but it “places huge strain on our public finances”, and “simply put: we have to get borrowing and debt back under control”.

But IFS Director Paul Johnson said it was not certain that “the big fiscal tightening planned for subsequent years will actually happen”, calling the proposed increase in corporation tax to 25% from 2023 a “significant risk”.

Johnson added: “Sunak made much of his desire to be honest and to level with the British people. 

“The fact that he felt constrained to raise taxes by hitting companies and through freezing allowances, rather than through more explicit rises in people’s taxes, suggests there are limits to how far he wants to level with us as he attempts to raise the overall tax burden to its highest sustained level in history.”

Earlier, the Office for Budget Responsibility said the measures in the Budget would increase the tax burden from 34% to 35% of GDP in 2025-26, putting it at "its highest level since Roy Jenkins was Chancellor in the late 1960s”.

During the Downing Street briefing Sky News' economics editor Ed Conway showed Sunak a graphic demonstrating this, and asked if he was concerned by the analysis.

Sunak replied: "I guess what your chart doesn't show is that all the other chancellors, if any of them have had pandemics to deal with.

"We haven't had a pandemic like this in over 100 years, so I think remember that's why we're having this conversation, that's the problem that we're grappling with.

"Unsurprisingly, when you've had a shock like that, and then when you've had a response in the likes of which we have done, I don't think any of those other chancellors probably ever had to do as much fiscal support for the country as I have had to.

"I think it's reasonable to expect that what we have to do in response to all of those things is going to be a bit different to what's happened in the past."He added: "What I would say is what are we doing with those taxes. What we're doing is funding strong public services.

"People elected us because we told them we were the party of public services, we were going to invest in the NHS, in schools, and we were also going to invest in projects across the country to level up opportunity.”

But the IFS criticised the Chancellor for leaving departmental spending allocations largely unchanged, which would mean he is “planning to spend £14 to £17billion less on public services each year after 2021 than he had planned pre-Covid”.

They said “the credibility of such a tight settlement is questionable”, and Ben Zaranko, a research economist at the institute, said: “Given the substantial and mounting pressures on the NHS, schools and other services, one has to wonder whether these spending totals have been set implausibly low so as to flatter the public finance forecasts.”

His IFS colleague Stuart Adam said the large corporation tax rate increase “will lead firms to invest less in the UK in the medium run, which will in turn depress economic activity and reduce the revenue generated by the tax rise”.

But Sunak has defended the policy, saying the UK will still have the lowest rate in the G7. 

"It is still an internationally competitive rate that signals that Britain is still open for business and supportive of business," he said. 

"I also think it is reasonable, given the amount of support we have given business, given the crisis we face in our public finances, to ask those largest most successful companies in two years' time to contribute something back to help us rebuild."

PoliticsHome Newsletters

PoliticsHome provides the most comprehensive coverage of UK politics anywhere on the web, offering high quality original reporting and analysis: Subscribe

Read the most recent article written by Alain Tolhurst - Liz Truss Doubts Slowing Down Would Have Saved Her From "Establishment Forces"

Engineering a Better World

The Engineering a Better World podcast series from The House magazine and the IET is back for series two! New host Jonn Elledge discusses with parliamentarians and industry experts how technology and engineering can provide policy solutions to our changing world.

NEW SERIES - Listen now

Partner content
Connecting Communities

Connecting Communities is an initiative aimed at empowering and strengthening community ties across the UK. Launched in partnership with The National Lottery, it aims to promote dialogue and support Parliamentarians working to nurture a more connected society.

Find out more