Sunak’s balancing act


Sunak’s balancing act

Rishi Sunak set out further emergency support in his Budget on Wednesday, saying he’d do “whatever it takes” to steer the economy through the final months of the Covid crisis. The furlough scheme, which had been due to end next month, will now remain in place until the end of September. Other measures to help those hardest hit by the lockdown include a further round of grants for self-employed workers, and an extension to business rates relief and VAT cuts, and to the £20 a week top-up to universal credit.

The Chancellor, who has already spent close to £300bn tackling the pandemic, said he hoped these and other policies would lay the foundations for a post-Covid recovery. But he warned that the Government would need to begin fixing the public finances once the recovery was under way. Under the Budget, corporation tax will rise from 19% to 25% in 2023. Sunak also froze the threshold at which people start paying the basic and higher rates of income tax from next year until 2026 – a move that will raise an estimated £6bn a year. Labour leader Keir Starmer said the Budget simply “papers over the cracks”.

Sunak has an “unenviable task”, When he splurged £30bn in his first Covid Budget, it seemed shocking, but that amount now “resembles loose change”. The deficit could soon hit £400bn; national debt is £2trn and counting. Thankfully, the Bank of England believes Britain is a “coiled spring” that could soon bounce back into growth. It will if we let it, but the danger is that corporation tax rises could slow the recovery. The Tories shouldn’t be looking to raise extra cash “to sustain an experiment in pandemic socialism”; they should be trying to “remove the dead hand of government”.

It would have been rash to bring in corporation tax rises next year, but there’s a good case for doing so in 2023. We have to balance the public finances at some point. Interest rates may not always remain at their rockbottom level and our finances need to be in a state to weather a rise. A tax on company profits is a “relatively painless” and “electorally palatable” place to start. If taxes must be raised, it’s the obvious candidate, At 25%, our corporation tax rate will still be below the G7 average of 27% and the Biden administration’s proposed 28%.