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A cabinet minister warned the Treasury against raising taxes to address a gap in public finances hit by the coronavirus, highlighting the apparent tension within the government on the issue ahead of this fall’s budget.
After several days of reports on apparent plans to raise more money from corporate tax, pension relief, fuel tax and other levies that sparked an angry response from some Tory MPs, the secretary for labor and pensions, Thérèse Coffey, asked for tax cuts.
Although he said he could not comment directly on Chancellor Rishi Sunak’s plans, Coffey told Times Radio that the tax cuts would likely generate more money.
“In the past, when we actually lowered tax rates, we saw an increase in taxes,” he said. “Tax rates are a very dynamic situation and we must make sure that the chancellor has the best opportunities when he announces it to the country.
“In the past, when some people assumed that the only way to increase taxes is to increase tax rates, in reality, we have shown the opposite in our economic history.”
The comments show the scale of the task the Treasury faces if it does not raise any taxes to make up for the deficit caused by the economic recession during the Covid-19 pandemic, with the government publicly committed to maintaining spending levels and a strong infrastructure investment program.
The Sunday Telegraph cited Treasury sources, reporting that the capital gains tax could be raised to align with income tax, as well as possible changes to the pension tax relief and inheritance tax.
According to a Sunday Times report, another measure could be to raise corporate tax from its current level of 19%, which is one of the lowest among major economies, to 24%. This caused immediate concern from business groups.
The Sun subsequently reported that another measure could be to add 5 pence to the fuel tax, prompting condemnation from Conservative MPs, some of whom support campaigns agitating against any increase in gasoline prices.
It is unclear who has been reporting on the plans, and Treasury sources insist that much of the reports are incorrect. This has sparked speculation that opponents of Sunak, who has emerged from the Covid crisis as a disputed future rival to Boris Johnson, have been trying to undermine his position.
Coffey’s intervention underscores the political danger facing the chancellor as he tries to establish some order over public finances, as the government has borrowed more than £ 150bn in the first four months of the current financial year.
Sunak’s options are further limited by the 2019 Conservative Manifesto, which ensured that there will be no increases in income tax, national insurance and VAT rates for this entire parliament.
