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Rishi Sunak flags tax rises in budget as total Covid spending tops £400bn

03 Mar 2021

Rishi Sunak has outlined tax rises on companies and workers to pay for an additional £65bn of financial support to see Britain through the coronavirus pandemic, taking total government spending on the crisis to more than £400bn.

The chancellor trailed before the budget that he would extend the furlough scheme until September, and allocated billions of pounds in business grants and tax cuts to help employers while lockdown restrictions remain and the economy takes time to recover from the worst recession in 300 years.

Giving his budget speech in the Commons, Sunak said he would continue to do “whatever it takes” while it took time for growth to bounce back after restrictions have been lifted. “It’s going to take this country, and the whole world, a long time to recover from this extraordinary economic situation. But we will recover,” he said.

However, he said the rate of corporation tax would need to go up to 25% for the most profitable companies in Britain from April 2023, in a major reversal of Conservative economic policy of recent decades, to pay for the damage to the exchequer inflicted by Covid-19.

Aiming to raise £17bn a year by the middle of the decade, Sunak’s plan to increase the rate of corporation tax for the first time since Denis Healey in 1974 will, however, threaten a backlash from backbench Tory MPs more typically in favour of lower tax policies.

Plans to raise billions more from income taxes through a freeze in the threshold at which workers start paying them is also politically delicate ground for the Tories after promising in the 2019 election to keep taxes low. Although committing not to raise income tax, national insurance and VAT at the election, he set out plans for a stealth raid – holding the threshold for basic and higher rate earners steady until 2026, in a move that should raise about £8bn a year within five years.

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