Sunak lays out highest taxes in 50 years to fund recovery

The Chancellor said the alternative to tax rises was ‘doing nothing’ and leaving the debt problem to future generations.

Rishi Sunak leaves Downing Street with the Budget Box on Wednesday. Picture: AFP

British Chancellor Rishi Sunak will raise taxes to the highest level since the 1960s as he attempts to repair Britain’s finances after spending an “unimaginable” £352bn ($630bn) in response to the pandemic.

Mr Sunak announced on Wednesday night that from 2023 corporation tax would rise from 19 to 25 per cent for the most profitable companies, raising nearly £50bn over the next five years.

He said that the basic rate and higher rate income tax thresholds would be frozen from next year, raising an additional £19bn.

The move, described as a stealth tax, will drag more than one million people into paying the higher rate of income tax and 1.3 million into the basic rate. The wealthiest fifth of households will pay an average of £826 more a year, while lower-earning households will pay an extra £56.

Mr Sunak acknowledged that the tax rises “might not be popular” but the alternative was “doing nothing” and leaving the debt problem to future generations.

“I know the British people don’t like tax rises. Nor do I,” he told a Downing Street press conference. “But I also know they dislike dishonesty even more. That’s why I’ve been honest about the problem we have and our plan to fix it.”

The Office for Budget Responsibility said that the tax burden would rise to 35 per cent of GDP, the highest level since Roy Jenkins was the Labour chancellor in the late 1960s. It represented the biggest net tax rise since 1993.

Institute for Fiscal Studies head Paul Johnson said that taxes were now likely to be at their highest sustained level in history. “This time expect the tax burden to stay high,” he said. “We are in a new phase of UK economic history.”

The Chancellor’s announcements were, in effect, a spend now, tax later budget. In the next two years he will spend £65bn supporting jobs and investment, only to raise an extra £26bn a year in tax by 2025.

Despite concerns in the Treasury that there would be dissent from Tory MPs, they were largely supportive. The hawkish backbencher Mark Harper said it was a “well-judged budget” despite imposing the highest tax burden he had seen in his lifetime. There was some opposition. At a meeting with the 1922 Committee of backbench Tory MPs on Wednesday night, Sunak was told by John Redwood that he should be cutting taxes, and one MP in a red-wall seat said that he had “nothing to sell” his voters. Labour signalled that it would support the tax rises.

A poll on Wednesday night by YouGov found 69 per cent support for the corporation tax rise and 11 per cent opposition. Forty-six per cent of those polled said that they supported the budget.

The OBR forecast that the economy would be 3 per cent smaller in five years than it would have been without the COVID crisis. It added, however, that the success of vaccinations meant the recovery would be faster than it had predicted, returning to pre-pandemic levels by mid-2022, six months earlier than thought, with 1.8 million fewer people losing their jobs than had been assumed.

THE TIMES