Rishi Sunak warned tax hikes to cover coronavirus spending will choke off economic recovery
Rishi Sunak is believed to be planning a series on tax rises in the Budget this autumn to pay for the coronavirus response (PA)
Rishi Sunak has been warned by senior Tories and business leaders that increasing taxes to pay for coronavirus spending will choke off the UK’s economic recovery.
The Chancellor is believed to be planning to use his autumn Budget to start to repair the massive hole in the public finances caused by the pandemic.
The Office for Budget Responsibility is predicting record borrowing of £322billion this year, but after reports Mr Sunak is considering a hike in corporation tax from 19% to 24%, as well as ditching the pension triple lock, Conservative backbencher Marcus Fysh said that would be the "wrong response”.
He said: “We need to help the economy not strangle it. These mixed messages are in themselves damaging and must stop.”
According to estimates raising corporation tax could raise around £15billion per year, while cutting pension tax relief to 20% would raise another £11billion.
Treasury officials described the reports over planned tax increases as “nonsense speculation”, but Stephen Barclay, the Chief Secretary to the Treasury, refused to rule them out.
Speaking to Times Radio he insisted such issues were a matter for the Budget, saying: ”There is always four moving parts to this. The key objective within the Treasury is to get growth.
"There is then a balance between the other three moving parts of debt, of spending, spending feeding into that, and tax.
"And what's your trade-off then between your spending measures and your tax measures.”
In response the former Cabinet minister John Redwood said: "You cannot tax your way to faster growth and more prosperity.
“We need policies to promote more jobs and activity to get the deficit down."
And Adam Marshall, director general of the British Chambers of Commerce, warned: “Raising the tax burden on business and entrepreneurs before they have a chance to recover could create serious issues for the trajectory of the UK’s overall recovery.
"It could slow investment, it could slow risk taking among entrepreneurs and growth businesses.
“Everybody in business understands the public finances have to be repaired but do it too early and you risk choking off growth at the crucial moment.”
David Davis, the former Brexit secretary, said: “At the moment the economy is in such a fragile state that pushing tax rates up is very unwise.
"It could dampen any economic recovery. The effect of increasing tax rates could reduce the tax take quite significantly.”
Mike Cherry, national chairman of the Federation of Small Businesses, said: “Given we’re in a recession the last thing policymakers should be doing is hiking taxes on those we need to invest, create jobs and generate growth over the crucial months ahead.
“It’s an approach that would send completely the wrong message to those who are out of work and thinking about starting up their own venture.”