Experts today warned Rishi Sunak that taxes should not be hiked for years, amid claims he is preparing to axe the £15billion aid budget to help fill the huge hole in the public finances.
The respected IFS think-tank said the focus for the government over the next ‘couple of years’ should be on propping up the economy rather than tackling the deficit.
The intervention came after briefing that the Treasury is looking at increasing big revenue raisers such as corporation tax and fuel duty to bring in £30billion a year.
There are also rumours the Chancellor will drop the legal commitment to spend 0.7 per cent of national income on foreign development as part of desperate efforts to balance the books.
Instead the move – which would delight many Tory MPs – would see cash diverted to Foreign Office and Ministry of Defence projects, according to The Sun.
Speculation has been swirling about the fate of the aid budget, as the government struggles to manage spiralling debt from recession and huge coronavirus bailouts.
As PM, David Cameron enshrined the international goal, first agreed by Tony Blair, in domestic law.
However, some believe the spending should be given the scale of the hit from the pandemic.
Chancellor Rishi Sunak (pictured in Scotland earlier this month) could drop the legal commitment to spend 0.7 per cent of national income on foreign development as part of desperate efforts to balance the books
The Chancellor reportedly wants to use the Budget in November to announce he intends to abolish the lock.
Mr Sunak is said to believe he has the backing of Boris Johnson and Foreign Secretary Dominic Raab – who is now in charge of the aid budget after DfID was scrapped.
Primary legislation would be needed to remove the existing commitment, and the step would also face opposition from Conservatives.
Former minister Tobias Ellwood said: ‘It’s shortsighted in failing to appreciate how well targeted aid can strengthen relationships & open up new markets – thus helping the Treasury.
‘Cutting aid also fuels instability which impacts on the UK. Let’s think strategically.’
The signals come amid claims Mr Sunak is plotting a huge tax raid in to shore up the finances.
Fuel duty, capital gains tax, corporation tax, the pension triple lock and pension tax relief are all said to be in the firing line.
The Treasury insists no decisions have yet been taken by ministers about how to deal with a deficit expected to top £300billion this year.
But the IFS think-tank warned this morning that there should not be any tax hikes for years, as the economy reels from the blow of lockdown.
Director Paul Johnson told BBC Radio 4’s Today programme that ‘at some point’ the Chancellor will need to raise more revenue.
He said the government’s focus should be on supporting the economy for a ‘couple of years’ rather than dealing with the deficit.
One Cabinet minister said the Chancellor would face a revolt if he pressed ahead with the tax grab.
‘Tax rises of this sort would be the worst possible economic policy to adopt right now,’ the minister said.
‘It would guarantee a much deeper recession. Large parts of the economy are still fragile – we need to nurture it, not throttle it.’
Mr Sunak is said to believe he has the backing of Boris Johnson and Foreign Secretary Dominic Raab (pictured) – who is now in charge of the aid budget after DfID was scrapped