Rishi Sunak refuses to rule out tax rises and warns of 'difficult' decisions as fears grow over coronavirus debt mountain
Rishi Sunak refused to rule out tax rises today as a leading economic watchdog warned that the debt mountain left by the coronavirus pandemic will take “decades” to reduce.
The Chancellor said he was prepared to make “difficult” decisions to deal with borrowing, set to balloon by an estimated £350 billion this year alone. He said he would take “the decisions that are required, difficult though they may be”.
Mr Sunak also admitted that some of the billions spent this year would have been wasteful because of the need to rush out one-size-fits-all solutions to the pandemic.
He conceded that plans to pay a £1,000 bonus to employers who keep on furloughed workers would involve significant “dead weight” costs because some firms would be doing so anyway.
The Chancellor’s comments came as the Government announced gyms will be able to reopen this month.
Culture Secretary Oliver Dowden will say tonight that they can operate from mid to late-July with strict hygiene and social-distancing measures.
In its traditional analysis of the mini-Budget, the Institute for Fiscal Studies, warned that the sheer scale of the Chancellor’s spending splurge meant tax hikes were “inevitable” in the next three or four years.
Director Paul Johnson said: “We certainly will be borrowing well over £300 billion this year. We are not going to get tax rises this year or next but at some point in the next three or four years, some potentially significant tax rises are inevitable.”
His deputy Carl Emmerson said tax rises worth £35 billion a year, or 1.5 per cent of GDP, may be needed just to “stabilise the debt at its new higher level”. With a smaller economy, “it’s going to take decades before we manage that debt back down to the levels we were used to pre this crisis”, he warned.
Pressed on whether he could avoid tax rises, Mr Sunak insisted it was “too early to speculate” and his focus was on avoiding job losses.
But he stressed: “Over the medium term the right thing for the economy will be to have sustainable and strong public finances. Of course I will make the decisions that are required, difficult though they may be, in order to return to that place.”
The Financial Times estimated today that borrowing will surge by more than £350 billion this year, accounting for 18 per cent of national earnings and representing a burden twice as big as the deficit after the 2008 financial crisis.
Asked why the job retention bonus had not been more targeted to avoid waste, Mr Sunak told BBC Radio 4’s Today programme: “Throughout this crisis I’ve had decisions to make and whether to act in a broad way at scale and at speed or to act in a more targeted and nuanced way.
"In an ideal world, you’re absolutely right, you would minimise that dead weight and do everything in incredibly targeted fashion. The problem is the severity of what was happening to our economy.”
He confirmed that “without question there will be dead weight — and there has been dead weight in all of the interventions we have put in place”. He added: “I would make the same decisions again.”
The shadow chancellor Anneliese Dodds told Today: “We really need to have targeted support ... the impact is very strongly sectoral.”
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