Sunak’s Budget to be ‘triple hammer blow’ to Covid recovery, claims Labour

Labour has issued a last-minute call to chancellor Rishi Sunak not to raise taxes, cut welfare or freeze public sector pay in Wednesday’s Budget, warning the “triple hammer blow” would undermine the UK’s recovery from the coronavirus crisis.

The call from shadow chancellor Anneliese Dodds came after Mr Sunak signalled on Sunday he will use the Budget to set a course for belt-tightening to pay down the UK’s £2 trillion national debt, declaring he intends to “level with people” about the perilous state of the public finances.

However it remained unclear whether his planned tax raids – expected to include a rise in corporation tax to as much as 25 per cent and a freeze on income tax thresholds to drag more workers into higher bands – will be immediate or phased in over the coming years.

Mr Sunak indicated he will extend furlough, business support and the £20-a-week uplift to welfare benefits in “alignment” with Boris Johnson’s 21 June timetable for lifting lockdown.

But he remains under pressure from industry and unions to keep the measures in place until companies get back on their feet, with Ms Dodds arguing that furlough must stay until demand returns and other business support at least until September.

And he today faces a demand from the influential 45-strong Northern Research Group of Tory MPs in red wall seats won from Labour in 2019 for a dramatic cut in business rates to save high street shops.

In a letter to the chancellor, the NRG MPs call for a “bold” cut in rates to 35 per cent of market rents, from their current level of more than 50 per cent, in order to “level the playing field” between bricks-and-mortar businesses and online retailers which have been able to continue trading during the town centre shutdowns of the pandemic.

NRG chair Jake Berry said: “We need to make sure that once people can go shopping again, they have high streets to go back to.

“Physical shops are fundamental both for the economic future of our towns and cities, but also to create the strong social fabric which will help bind our communities together. They offer an experience that online shopping, valuable as it is, cannot match.” 

Meanwhile, former prime minister Gordon Brown accused the government of “betraying a generation of unemployed” and said the chancellor must use the Budget to scale up support for jobless young people, after his flagship Kickstart scheme reached just three in 1,000 of out-of-work under-25s.

In a pre-Budget speech in London, Ms Dodds will say that Mr Sunak’s reported plan to freeze public sector pay for up to three years to recoup some of the £280bn borrowed for Covid support was “economically illiterate” at a time when the economy will be relying on consumer spending to fuel recovery.

Ms Dodds will demand a plan to protect jobs and businesses, give families certainty and secure the recovery, not a “triple hammer blow of council tax rises, social security cuts and pay freezes”.

She will say the Budget is “a test of character” for Mr Sunak after a decade of “Conservative mismanagement of the economy” and “12 months of irresponsible decision-making” by the chancellor left Britain with the worst economic crisis of any major economy.

Ms Dodds will identify a “Sunak effect” of repeatedly delaying the announcement of financial support packages over the past year beyond the point at which companies were forced to make tens of thousands of redundancies.

“While he dithers and delays, people right across the country lose their jobs,” she will say.

Warning that the chancellor is making the same mistake again by allowing the clock to run down on schemes which are due to expire at the end of March, she will call on Mr Sunak to:

* Keep furlough so long as health restrictions remain and demand is low;

* Maintain business rates relief and the reduced rate of VAT for at least six months to September;

* Provide clarity on the future of support for the self-employed; and

* Extend the £500 self-isolation payment to those without a sick pay scheme at work.

Ms Dodds and Labour leader Sir Keir Starmer are coming under attack from the party’s left for joining Conservative backbenchers in opposing an immediate rise in taxes on big business.

But she dismissed the criticism, insisting that while she was ready to discuss reform of corporation tax in the longer term, her priority was to “protect jobs and businesses right now”.

In her speech at Bloomberg she will say that Wednesday’s Budget should be about “rebuilding the foundations of our economy” with a “responsible plan that puts us on the path to a better, more secure future”.

Plans to allow a 5 per cent rise in council tax, freeze public sector workers’ pay and remove the £20 universal credit boost were “economically illiterate” because they would take money out of people’s pockets just as shops, pubs and restaurants reopen their doors.

“The chancellor’s message to our key workers – our teachers, our police officers, our armed forces personnel – at the end of one of the hardest years in living memory is to say: you deserve a real-term pay cut,” she will say. “That is spectacularly unjust. It’s also economically illiterate.

“From the IMF and the World Bank to the OECD, every major international economic organisation is in agreement: now is not the time for tax rises on struggling businesses or families.”

In a round of media appearances on Sunday, Mr Sunak said his Budget will set out an “honest and fair plan” to start rebalancing the public finances, warning that historically high debt levels leave the UK “exposed” to future interest rate spikes. The Treasury calculates that a one percentage point rise would add £25bn annually to the cost of servicing the national debt, currently running at around 100 per cent of GDP.

He said: “What I want to deliver is support for our economy, now when it needs it, support along that roadmap helping to drive our recovery.

“But also levelling with people and being straight about the challenges we face over time because of the shock coronavirus has caused our public finances and making sure that we’re clear with people about an honest and fair plan to address that. And I think those things are both compatible.”

He made clear that the belt-tightening to pay for the pandemic will stretch years into the future, telling Sky News’s Sophy Ridge on Sunday: “This is going to take time to fix.”

But he said that he “did not recognise” reports that he is looking for £43bn a year in savings and tax hikes.

Ms Dodds accused him of “playing party politics” with the public finances, after reports that he had told Tory MPs he wanted to get tax hikes out of the way now in order to be able to cut them closer to the election expected in 2024.

Mr Sunak also revealed that the Budget will include a £1.65bn “shot in the arm” for the Covid vaccination campaign, as the number of Britons receiving their first jab topped 20 million.