The tax levers Sunak could pull to tackle our soaring debt pile

Linda J. Dodson

Even in the midst of a once-in-a-lifetime economic crisis, Rishi Sunak is the most popular man in Government and the most liked Chancellor since Gordon Brown’s heyday. But after a whirlwind five months doling out huge economic aid, Sunak’s honeymoon could soon draw to a close.

On launching the spending review amid eye-watering borrowing figures, the Chancellor hinted this week that tough and unpopular decisions lie ahead. Most economists and Treasury watchers now agree that tax rises are almost an inevitability to help Britain pay off its Covid bill. 

Torsten Bell, chief executive of the Resolution Foundation, says the big economic debate “will be how much and which taxes to increase”.

“That is partly for economic reasons which is to do with the scale of the structural deficit that will last even after we have recovered from the crisis and also the politics which makes a repeat of the 2010s difficult.”

Sunak is likely to hold off until the recovery is well underway with the danger that premature tax rises would hurt the recovery and worsen the debt dilemma.  But who Sunak squeezes to rein in borrowing is more uncertain.

The Conservative manifesto’s promise not to raise the three heavy-lifting taxes of income tax, national insurance or VAT could be put under immense pressure. Capital gains tax is facing a shake-up after being put under review by Sunak while some argue bolder action could be needed.

What is agreed is the scale of the task ahead of the Chancellor. The Office for Budget Responsibility believes the country’s debt pile will become unsustainable without intervention as Covid-19 sends borrowing surging to £372bn this year.  Debt is at around 100pc of GDP, up from close to 80pc last year, and the virus will leave the UK with a higher structural deficit.

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