A Treasury minister has downplayed the need for immediate tax rises to tackle record levels of government borrowing caused by the coronavirus pandemic.
Answering questions from the Commons Treasury committee amid mounting speculation that the March budget could be used to increase taxes, he told MPs: “It’s not absolutely obvious therefore that there may be any future need for consolidation, depending on the view you take of taxes.
“Of course we may end up with a somewhat delayed but nevertheless very pronounced bounce. There are features of the economy which would suggest that could be quite significant, if you look at the level of household savings, for example, and data like that.”
The comments follow weekend newspaper reports that the chancellor, Rishi Sunak, is preparing to raise taxes in the 3 March budget in order to bring down record levels of government borrowing. Sunak has warned that “hard choices” must be made to fix the public finances, and used his spending review in November to freeze public-sector pay and cut the overseas aid budget.
The UK’s budget deficit – the gap between spending and tax income – is on track to reach at least £394bn for the financial year ending in March, amid a rise in emergency spending during the crisis and collapse in tax receipts. The national debt – the sum total of every deficit – has risen to more than £2tn, equivalent to more than 100% of national output.
However, major tax increases might well provoke a swift Tory backlash. The chancellor has also been urged by leading economists to take advantage of record low borrowing costs and to steer clear of raising taxes or launching a renewed austerity drive to allow a sustainable economic recovery to take hold. The Institute for Fiscal Studies has said £40bn in tax increases may be necessary in future to put the public finances back on a sustainable footing.
Downplaying the need for immediate action, Norman said the Treasury was still focusing on stabilising Britain’s economy amid elevated levels of Covid infections and tough government restrictions.
“We [need to] stabilise the economy and try to keep things moving forward before we can start thinking about the wider framework of policy. Although, as I’ve said, the chancellor does expect to think in terms of strong and sustainable public finances,” he said.
Mel Stride, chair of the Treasury committee, said: “I take away from this that it’s not a done deal that there will be tax rises. There are possibilities out there in terms of our recovery that might see us avoid what probably a lot of people are expecting. That remains to be seen.”