Britain’s public finances will face ‘enormous strains’ in the wake of the third national lockdown, the Chancellor has warned.
Ahead of Wednesday’s Budget announcement, Chancellor Rishi Sunak said a bill for the Government’s £280bn investment in coronavirus support will eventually have to be paid, with low interest rates leaving the nation’s finances ‘exposed’.
Mr Sunak said: ‘We now have far more debt than we used to and because interest rates… at least a month or two ago were exceptionally low, that means we remain exposed to changes in those rates.
‘That’s why I talk about levelling with people about the public finances and our plans to address them.’
While Mr Sunak did not reveal any details on specific tax measures, the Budget is expected to include a swathe of actions aimed at kickstarting the nation’s economy as lockdown eases over the coming months.
It is anticipated that the Chancellor will say in the Budget that ‘we have to be honest about the decisions we face as a country’, and that such decisions must be ‘underpinned by fairness’.
One measure believed to be under consideration is a ‘stealth tax’ on affluent pensioners which will see the lifetime allowance frozen for the rest of this Parliament, The Times reported.
However, Tory MPs in the northern England Red Wall seats won from Labour at the 2019 election warned they were ready to be an ‘absolute nightmare’ for the Chancellor amid fears of tax rises.
But former Conservative Chancellor Lord Ken Clarke said on Saturday that Mr Sunak ‘must look at’ raising VAT, national insurance and income tax whilst keeping in place the furlough scheme.
Britain’s public finances will face ‘enormous strains’ in the wake of the third national lockdown, Chancellor Rishi Sunak has warned
It comes after data revealed by the Office for National Statistics (ONS) earlier this month showed that £316.4billion has been added to the UK’s debt mountain since the onset of the pandemic
It comes after data revealed by the Office for National Statistics (ONS) earlier this month showed that £316.4billion has been added to the UK’s debt mountain since the onset of the pandemic.
It means overall state debt has now hit another record high, as it continues to climb above £2.1trillion.
Measures expected in the Budget include a £126 million boost for traineeships and a mortgage guarantee scheme aimed at helping aspiring homeowners with small deposits onto the property ladder.
Speaking to the Financial Times: Mr Sunak added that while there is a challenge facing the nation’s economy, he believes the Budget will be a much-needed boon for those hit hardest by the pandemic.
He said: ‘I stood up at the beginning of this [coronavirus] thing and said I will do whatever it takes to protect the British people through this crisis and I remain committed to that.
‘We went big, we went early, but there is more to come and there will be more to come in the Budget. But there is a challenge [in the public finances] and I want to level with people about the challenge.
Public sector net borrowing has surged since the start of the pandemic last year with records set almost every month
‘Some 750,000 people have lost their jobs and I want to make sure we provide those people with hope and opportunity. Next week’s Budget will do that.’
The Chancellor’s comments came as Conservative MP John Stevenson warned Mr Sunak that now is not the time to start winding up measures supporting people and businesses through the pandemic.
Five per cent deposits for first time buyers: Rishi Sunak to guarantee mortgages with government loans in next week’s budget
A mortgage guarantee scheme to help thousands of young people onto the property ladder with small deposits is set to feature in next week’s Budget.
Chancellor Rishi Sunak plans to incentivise lenders to provide mortgages to first time buyers, and current homeowners, with just 5 per cent deposits to buy properties worth up to £600,000.
He will detail on Wednesday how the Government will offer lenders the guarantee they require to provide mortgages covering the remaining 95 per cent.
Prime Minister Boris Johnson has said he wants to turn young people from ‘generation rent to generation buy’ and end the atmosphere of exclusion many millennials and Generation Zs have had with the property market.
The Carlisle MP, who is a member of the Northern Research Group, told BBC Radio 4’s Today programme: ‘There are two key things we want to see: continuing support for the economy, for families for business, through many of the policies that the Chancellor has already enacted.
‘We’re not through the pandemic yet, we’ve still got a few months to go, so we want to see continuing support and we’ll probably have a much better idea of where the economy is come the autumn.
‘As soon as we can get back to that levelling-up agenda which we were all elected on in 2019, we believe that in the north we have a major contribution to make to the recovery.’
Among the measures he wants extended is the £20 weekly uplift to Universal Credit, but he also said it is ‘too early’ for tax rises, adding: ‘The way out of this is to actually grow the economy.’
He added that it was ‘too early’ for tax rises.
Other MPs in the so-called Red Wall seats in the Midlands and the North which the Conservatives won from Labour at the 2019 election also warned Mr Sunak that any tax rises must be deferred until the economic recovery gathers pace.
Barrow and Furness MP Simon Fell said backbenchers were prepared to become ‘an absolute nightmare’ for Mr Sunak chancellor by demanding resources for their constituencies, the Independent reported.
Lord Clarke told BBC Radio 4’s Today Programme that Mr Sunak ‘has to keep in place things like the furlough scheme’.
He said the measures ‘stopped the economy collapsing’ and ‘kept alive good businesses’ that ‘will revive’ after the coronavirus crisis is over.
But the Tory grandee, who led the Treasury from 1993 until 1997 under Prime Minister John Major, said the measures would mean ‘more spending, more debt piling up.’
‘What he [Mr Sunak] also has to do is start actually preparing for how he’s going to get that debt under control, how he’s going to return the burden of debt to normality, how he’s going to raise taxation, and I think he’s set out his intention to do that,’ he said.
The peer said he would look at raising personal tax and said looking at corporation tax would be ‘quite sensible’ as it is ‘quite unnaturally low levels’.
Lord Clarke said Mr Sunak ‘must look at’ raising VAT, national insurance and income tax.
Former Conservative Chancellor Lord Ken Clarke said on Saturday that Mr Sunak ‘must look at’ raising VAT, national insurance and income tax whilst keeping in place the furlough scheme. Pictured: Lord Clarke in the House of Commons before he stepped down as an MP at the 2019 election
However, increasing any of them would tear up a key manifesto pledge.
‘Sensible people know in their bones that all this emergency Government spending is going to have to be paid for and is going to be a burden on them,’ he added.
‘The manifesto you refer to was written by a couple of apparatchiks in the office halfway through the campaign.’
He added that the authors ‘had no idea that this massive economic blow was going to hit us.
‘I think you can explain the manifesto to any sensible person by pointing out that it was written when no one predicted anything like the covid crisis, anything like the borrowing of hundreds of billions of pounds that the Government has had to embark on.
Speaking of Tory MPs who would be opposed to tax rises, Mr Clarke said: ‘The lobby you get before a Budget, certainly from the right of the Conservative party, is that you should cut taxes if possible, on no account raise any taxes.’
He added: ‘The backbenchers have got to be persuaded. This crisis has been so unfair. Financially, it has hit the poor, the young, the low-paid, the vulnerable.
‘The comfortable middle classes, the older middle classes, the comfortable retired are actually financially better off because of the crisis because their house prices have gone up, their investments have increased in value, thanks to quantitative easing and they’ve saved money which they haven’t been able to spend on their holidays.
‘I’m only suggesting sensible, cautious things.’
The mooted plans to freeze the lifetime allowance – the threshold below which pensioners can swell their pension pots without paying tax – would push thousands outside the tax-free bracket and slap future payments with a 25 per cent levy, or as much as 55 per cent if paid as a lump sum.
The allowance is currently at just over £1million.
But a freeze could also net the Treasury £250million and help the Chancellor bring the finances on to a more even keel after high levels of Covid public spending.
The lifetime allowance usually rises with inflation and would be due to increase by £88,900.
If it is frozen, around 10,000 people with larger pensions are estimated to slip above the threshold.
Mr Sunak previously hinted that tax rises earlier this month following the release by the ONS of the national debt figures.
He said ‘it’s right that once our economy begins to recover, we should look to return the public finances to a more sustainable footing’.
Overall public sector net borrowing in the first 10 months of the financial year is estimated to have been just over £270billion.
That is £222billion more than was borrowed in the preceding financial year.
The Office for Budget Responsibility (OBR) has said it expects the public sector might borrow as much as £393.5 billion by the end of the financial year in March
It is the highest public sector borrowing in any April to January period since records began in 1993.
Public sector net debt has risen by £316.4 billion over the 10 months since the start of April, at the onset of the coronavirus pandemic.
The ONS said the state debt had therefore increased to £2,114.6billion at the end of January.
That is approximately 98 per cent of gross domestic product – a debt level not seen since the early 1960s.