Cabinet minister Therese Coffey hints taxes should be CUT in the Budget despite claims Rishi Sunak could hike national insurance for self-employed to help fill Covid black hole in government finances
- Therese Coffey said lowering taxes could bring in more money for government
- Comments come amid rumours Treasury is drawing up tax rises after Covid
- Government finances have been hammered by the impact of the lockdown
A Cabinet minister hinted taxes should be cut to revive the economy today – despite claims Rishi Sunak is considering hiking national insurance for the self-employed.
Work and Pensions Secretary Therese Coffey said reducing tax rates could actually bring in more revenue to help fill the huge gulf in the government finances after coronavirus.
The intervention comes after a wave of speculation about the Chancellor moving to balance the books after they were ravaged by the pandemic.
Downing Street has been playing down rumours of a 5p increase in fuel duty, and increasing corporation tax in the financial package, due next month or in November.
According to the Sun, the Treasury has also been drawing up plans to raise Class 4 NI contributions that are paid by the self-employed.
Work and Pensions Secretary Therese Coffey said reducing tax rates could actually bring in more revenue to help fill the huge gulf in the government finances after coronavirus
Rishi Sunak (pictured left with Boris Johnson yesterday) is due to deliver a crucial Budget later this year
The rate could be increased from 9 per cent to 12 per cent to equalise it with employees. It would mean average workers paying around £200 a year more.
When he announced bailouts in the Spring, Mr Sunak suggested such steps would need to be taken. ‘If we all want to benefit from state support, we must all pay equally in future,’ he said.
Asked about tax changes during a round of interviews this morning, Ms Coffey told Times Radio: ‘I will point out to you that in the past when we’ve actually cut tax rates, we’ve actually seen taxes increase.
‘So tax rates is a very dynamic situation, we need to make sure our chancellor has the best opportunities when he announces to the country in actually quite a short time…
‘Some people might assume the only way to get tax up is to increase tax rates but we have shown in our economic history the opposite.’
Economists have warned that ordinary Britons face rises in income tax, national insurance and VAT to fill the huge hole in the public finances.
The extra annual revenue needed due to lost growth and huge bailouts could be as much as two per cent of national income – roughly £44billion.
However, senior economists and academics told the Treasury Select Committee yesterday that Mr Sunak did not need to act immediately.
There was broad agreement that there should be no rush to pay down the Government debt, which topped £2trillion last month for the first time since the 1960s.
The experts from the Institute for Government, Institute for Fiscal Studies (IFS), Resolution Foundation (RF) and Institute of Economic Affairs (IEA) agreed that the ratio of tax to income in the UK has not peaked compared with other countries.
The coronavirus crisis has dealt a shattering blow to the UK economy – with uncertainty over how fast it will recover
Paul Johnson, Director at the Institute for Fiscal Studies (IFS) said although the size of the hole in the finances remained to be seen, without spending cuts it would mean a ‘fairly substantial increase – that might be 2 per cent of national income, for example’.
That was likely to require rises in income tax, national insurance contributions and VAT.
He said: ‘I would expect in the medium run at least increases in those taxes simply because that’s where significant amounts of income comes from.’
The IFS economist added that a two or three percent increase of the basic rate of tax of 20 per cent ‘is not going to do any significant economic damage’.
But his preference was to VAT changes, pointing out the huge extra tax take from the rise in 2011 from 17.5 per cent to 20 per cent.