Coronavirus: Rishi Sunak warned not to choke off Britain’s recovery from pandemic with new taxes

Labour calls for targeted extension of furlough, as scheduled cut to scheme raises fears of job losses

Andrew Woodcock
Political Editor
Sunday 30 August 2020 12:44
Coronavirus in numbers

Business has warned chancellor Rishi Sunak not to choke off Britain’s recovery from the coronavirus pandemic with new taxes.

The call came amid fears of a new wave of redundancies as Mr Sunak scales back his Job Retention Scheme on Tuesday, with the Treasury cutting support for workers’ monthly wages from 80 to 70 per cent and requiring employers to contribute up to £312 a month for each furloughed staff member.

Labour today renewed calls for furlough - due to end altogether in November - to be extended for the worst-hit industries, like aerospace and automotive. And the British Chambers of Commerce called on the chancellor to soften the blow for employers by waiving their National Insurance contributions.

Shadow business secretary Lucy Powell voiced concern over media reports that Mr Sunak is mulling tax hikes of up to £30bn to fill the black hole in Britain’s finances left by the Covid-19 crisis.

The chancellor’s focus now should be on “keeping people in work and protecting viable businesses”, not balancing the books, she said.

Chief secretary to the Treasury Stephen Barclay refused to discuss his boss’s plans, but did not rule out the possibility of tax rises.

BCC director general Adam Marshall said he was "very concerned" by reports the Treasury is considering a rise in corporation tax and capital gains tax as part of a revenue-raising package in the November Budget.

The Sunday Times reported that corporation tax could rise from 19 to 24 per cent at a cost to business of £12bn, while capital gains could be levied at the same rate as income tax.

Dr Marshall warned that piling taxes on businesses would be “a really damaging mistake”.

He told Times Radio's G&T programme that by doing this, “you tell them that it's not a good environment to invest in, it's not a good environment to take a risk, you will hamstring the recovery”.

And he said: ”I very much hope that this is the Treasury flying kites rather than settling policy, because we do not want to make a choice between a strong recovery with lots of investment and risk-taking by businesspeople or a short-term repair of the public finances.

“Let's nurture the embers of that recovery first and then repair the public finances, not get them the wrong way around.”

Lucy Powell

Offering employers a National Insurance contribution holiday would cut 14 per cent off the cost of wages, he said, adding: “I’d much rather see businesses paying people salaries than paying the Revenue during an uncertain period ahead.”

Ms Powell said Sunak should be considering extending furlough for targeted sectors of the economy, in a way which has been done in France and Germany, where schemes are set to run at least until the end of 2021.

“If you look at aerospace or automotive industries, for example, they've had they've had no sort of support of that kind yet,” she told Times Radio.

“They've seen the absolute floor drop out of their sectors and their businesses.

“We've seen the Eat Out to Help Out scheme (for restaurants), we saw a £3bn demand stimulus for the housing market with the stamp duty cuts, even though the housing market wasn't really one of those sectors most acutely affected.

“Yet there are some other key sectors like aerospace and automotive - good decent employers with jobs outside the London bubble where if those jobs go those communities will probably never recover from it - where we could be seeing more sectoral support, like France and Germany are offering to their automotive and aerospace sectors.”

Saving jobs now rather than withdrawing support prematurely would help Mr Sunak balance the books in future years, she said.

“The main priority should be how can we protect the public finances over the next two, three or four years and the single biggest determinant of that by a million miles is whether you're forking out, week on week, month on month, lots of money on unemployment benefits and also seeing your tax revenues going down because you’ve got high unemployment,” she said.

“That's the thing we should be really focusing on.”

Reports suggested that the Treasury is also considering cuts in pension tax relief, an end to “triple lock” protection for pensions, fuel duty hikes, a revamped inheritance tax or the introduction of an online sales tax to help meet the cost of Covid.

But 10 Downing Street was said to be resisting increases in the tax burden, calling instead for cuts in spending to reduce the black hole in the nation’s books.

But Ms Powell warned against “bringing back austerity”.

“We know the impact of that, which is a stagnant economy over a long time,” she said. “You can't cut your way out of a recession and you certainly can't be cutting public services, health and education, at a time of crisis like this.”

Mr Barclay declined to discuss the possible content of Mr Sunak’s upcoming Budget, but did not rule out the possibility of tax rises.

Asked whether Corporation Tax, once slated by Mr Sunak’s predecessor Philip Hammond for a cut to 17 per cent this year, could instead rise to 24 per cent, Mr Barclay said: “There are always a whole range of measures and as soon as one starts to say, ‘Well I rule this one out’, you'll cherry-pick as to which ones one hasn't done. So I'm not going to get into that.”

He told Times Radio: “The key objective within the Treasury is to get growth,” he told Times Radio. “That's what we've been focused on.

“There's then a balance between the other three moving parts of debt, of spending, feeding into that and tax and what's your trade off then between your spending measures and your tax measures. But the real objective is to reduce the economic scarring from Covid.”

Treasury sources said they do not comment on what may or may not be in the upcoming Budget.

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