'Income tax hikes, a public sector pay freeze and scrapping triple lock on pensions' to foot ‘£300bn’ Covid-19 bill

Chancellor Rishi Sunak in Downing Street Credit: Dominic Lipinski/PA

Labour has urged Boris Johnson and Rishi Sunak to reject public sector spending cuts as a way of paying off the cost of the coronavirus crisis following reports that measures including tax hikes and a pay freeze are being considered.

The Daily Telegraph said that a Treasury document estimated the UK’s deficit could reach £337 billion this year because of the pandemic, compared to the forecast £55 billion in March’s Budget.

It said the assessment, drawn up for the Chancellor and dated May 5, warned that to fill such a gap in the public finances through tax revenue rises would be “very challenging without breaking the tax lock”.

The paper said measures including income tax hikes, a two-year public sector pay freeze and the end of the triple lock on pensions may be required to fund the debt.

The document is said to state: “To fill a gap this size (in the public finances) through tax revenue risers would be very challenging without breaking the tax lock.

“To raise fiscally significant amounts, we would either have to increase rates/thresholds in one of the broad-based taxes (IT, NICS, VAT, CT) or reform one of the biggest tax reliefs (e.g. pensions tax).”

Chancellor Rishi Sunak outside 11 Downing Street, London, before heading to the House of Commons to deliver his Budget. Credit: Victoria Jones/PA

In the worst-case scenario, the assessment reportedly warns that the deficit could increase to £516 billion in the current financial year.

The Treasury declined to comment on the report, but it is understood that the document is one of many put together by different teams to discuss ideas about future policy.

A source said the document “does not reflect Government policy”.

Shadow chancellor Anneliese Dodds said: “A lack of resilience in our public services, caused by 10 years of underfunding, has made it harder to deal with the challenge of coronavirus.

“After all our public services and key workers have done to save lives during this pandemic, there must be no return to a society where we lack that resilience.

“Both the Chancellor and the Prime Minister must urgently make a statement rejecting these plans.”

The Conservatives pledged in their manifesto at the general election last year that the party would not raise the rate of income tax, VAT or National Insurance, and would keep the pensions triple lock.

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