Rishi Sunak is preparing sweeping tax rises for years to come for every household in the country, as the PM and Chancellor Jeremy Hunt agree to fill ‘eye-watering’ £50billion black hole through a combination of tax increases and spending cuts.
Mr Sunak and Mr Hunt agreed yesterday it was ‘inevitable’ that all taxpayers will face a higher burden in the coming years.
Their grim assessment came after they decided that soaking the rich and taking an axe to public spending will not be enough to balance the books and protect services, with an estimated £50 billion to be found.
A Treasury source said last night: ‘It is going to be rough. The truth is that everybody will need to contribute more in tax if we are to maintain public services.
‘After borrowing hundreds of billions of pounds through Covid-19 and implementing massive energy bills support, we won’t be able to fill the fiscal black hole through spending cuts alone.’
They added that Mr Sunak and Mr Hunt are committed to protecting the most vulnerable in society during the ‘difficult period’ ahead.
The new Prime Minister and Chancellor, preparing for the crucial Budget on November 17, agreed last week that major cuts must be made to Whitehall departments, signalling a return to the austerity era of a decade ago.
But in another summit yesterday morning, they concluded that tax rises will also be needed across the board.
Rishi Sunak and Jeremy Hunt agree it is ‘inevitable’ that all taxpayers will face a higher burden in the coming years
Mr Sunak and his wife Akshata Murty buy poppies, and a special ‘poppy’ dog collar for their pet Labrador Nova from representatives of the Royal British Legion
Prime Minister Rishi Sunak (right) and Chancellor Jeremy Hunt (left) pictured during a meeting in the Cabinet Room in No10 on Monday
‘You will need spending cuts to fill that black hole, but unfortunately you need tax rises too,’ an insider said.
‘The focus will be towards the upper end of the income scale but the truth is, there are not enough people there – everybody will have to pay more. Everyone will feel the pain.’
VAT, national insurance and income tax hikes are all understood to be off the table given previous pledges and Conservative Party manifesto commitments, while increasing fuel duty is likely to be seen as too risky in the middle of a cost of living crisis.
It means the Treasury is likely to focus on ‘stealth’ measures such as freezing income tax thresholds for another two years.
That would raise as much as £5 billion by dragging up to three million workers into higher tax bands.
The income tax and national insurance thresholds were expected to be frozen until 2026, with the new plan extending this by at least two more years.
It comes after it was revealed that Mr Hunt is looking at a 50:50 split between spending cuts and tax rises in the Autumn Statement, which was due to be delivered yesterday but was delayed so the new PM could get ‘under the bonnet’ of the plans.
By contrast, George Osborne’s austerity package after the financial crash was 80 per cent spending cuts and 20 per cent tax rises.
The Telegraph reported that Mr Sunak and Mr Hunt have agreed to freeze the thresholds at which people start to pay the different rates of income tax and national insurance for the years ahead.
Mr Hunt has already announced £32billion in tax rises as he sought to reassure the financial markets that the situation would be brought under control following the sacking of his predecessor Kwasi Kwarteng.
Insiders at the Treasury said that Mr Sunak and Mr Hunt agreed on Monday that while ‘those with the broadest shoulders should be asked to bear the greatest burden’, taxes would rise for everyone, the Financial Times reported.
It is thought that extending a freeze on personal tax allowances could raise around £5 billion a year by 2027, the newspaper reported, with ‘fiscal drag’ possibly pulling people into higher tax brackets due to inflation.
Funds could also be raised by Mr Sunak reverting back to his plan to raise National Insurance by £13 billion.
However an ally of the Prime Minister admitted that it would be a political challenge to ‘march everyone up a hill again when they’ve already been marched up and down it once before’, the told the newspaper.
Tory MPs have voted to raise it and cut it on different occasions.
Speaking on a visit to a hospital in Croydon last week, the Prime Minister said he would act to ‘protect the most vulnerable’ as he tightens the nation’s belt. But he said the eye-watering package was necessary to bring inflation under control and limit the looming rise in mortgage payments.
‘The Chancellor has already said difficult decisions are going to have to be made and I’m going to sit down and work through those with him,’ he said.
‘But what I want everyone to know is that we need to do these things so that we can get our borrowing and debt back on a sustainable path. That’s important because it means that we can get a grip of inflation if we do that. It means we can limit as best as possible the increase in interest rates, which is important.
‘But as we do that, I want people to be reassured we will always do it with fairness at the heart, we will protect the most vulnerable and ensure that we can continue to grow the economy in the long run.’
The Resolution Foundation think-tank said ministers will have to squeeze taxpayers and the public sector further because of a ‘deteriorating economic outlook’ and the legacy of Liz Truss’s abandoned growth plans.
The grim assessment came after they decided that soaking the rich and taking an axe to public spending will not be enough to balance the books. Pictured: Mr Hunt arriving at No10 on Monday
A recession is likely next year while unemployment could rise by 500,000 and inflation is expected to remain higher for longer, it added.
Foundation research director James Smith said: ‘The central picture remains one of a weaker growth, higher borrowing costs and expensive tax cuts that have left a fiscal hole of at least £40 billion to fill.
‘History tells us that this will involve cuts to public investment, which are easy to announce but reduce growth in the longer term.
‘Further austerity for public services is also likely, but there are limits to how big these can credibly be, as public services are already facing cuts of £22 billion thanks to high inflation.
‘This reality means that the Autumn Statement is likely to involve tax rises, not just spending cuts.’
The Treasury’s warning came as Suella Braverman was fighting for survival on two fronts as she faces a row about overcrowding at the Manston migrant processing centre in Kent, and is contending with a continuing controversy over security breaches following her use of a personal email address to send official documents.
The Home Secretary has come under pressure over the situation at Manston following reports she failed to act on legal advice that migrants were being detained for unlawfully long periods at the site.
Mrs Braverman outlined how it costs taxpayers £6.8million a day to fund hotel accommodation for migrants and asylum seekers.
As she spoke in the Commons, the Treasury warned that spending cuts will not be enough to raise the billions needed to balance the Government’s books.
The changes will be included in the Autumn Statement, due to be released on November 17. It will detail spending decisions for the next five years, with changes expected to be introduced at the start of the next financial year.
‘Taxpayers will be horrified by talk of bigger bills to come,’ chief executive of the TaxPayers’ Alliance, John O’Connell, told The Telegraph.
‘With the tax burden at a 70-year high, Brits are being expected to bear the brunt of a spiralling cost of government crisis. The Chancellor must make significant savings to ease the strain on hard-pressed households.’
It comes as spending concerns are raised around the NHS, with Government insiders believing that billions more are needed to clear a backlog caused by Covid-19, the paper reported.
The fear is that without more money, the waiting lists will continue to lengthen, while inflation creates a shortfall in the existing budget.