Coronavirus crisis could see £165 tax hike for millions of workers and public sector pay freeze, leaked document warns

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THE coronavirus crisis could lead to a £165 a year income tax hike for millions of workers, according to leaked Treasury documents.

The impact of the virus could also bring about an end to the triple lock on state pensions and a two-year freeze on pay for nurses, teachers and police as part of a menu of options the Chancellor is looking at to balance the books.

The document, dated May 5, was drawn up by officials for Chancellor Rishi Sunak and labelled “Official – market sensitive”, the Telegraph reported.

It contains a range of options for how the Chancellor can begin to claw back some of the vast amounts he is spending to keep the economy afloat throughout the crisis.

Nothing is yet set in stone, but it shows the bleak path which might be ahead for Britain.

The Chancellor could be set to announce the measures in a matter of weeks so as to “enhance credibility and boost investor confidence” in the UK economy.

Tax expert Jonathan Barratt at Blick Rothenberg estimated that a one percent rise in the base rate of income tax could cost the average worker earning £29,000 a year, a tax rise of £165.

Anyone earning over £12,500 a year pays a basic rate of income tax on anything they earn.

ECONOMY SHRINKS 5% IN MARCH

The news comes at the same time it was revealed that Britain’s economy shrunk by two per cent in the last three months overall.

The UK economy plunged by 5.8 per cent in March in the fastest monthly slump on record.

In the next three months, the UK is set to go into another recession, partly thanks to the impact of the virus.

Chancellor Rishi Sunak has said it is “very likely” that the UK will face a “significant recession” as a result of the coronavirus crisis.

He told the BBC: “A recession is defined technically as two quarters of decline in GDP.

“We’ve seen one here with only a few days of impact from the virus, so it is now very likely that the UK economy will face a significant recession this year and we are in the middle of that as we speak.”

Mr Sunak is said to be comfortable with the UK having a higher level of debt for the forseeable future to pay for the crisis.

How economies around the world have suffered

Under the most likely scenario the country’s budget deficit this year would be £337billion, compared to the £55billion forecast in March’s budget.

Tax rises and spending cuts might have to raise £25 and £30billion a year, and a one per cent rise in the base rate of tax is one of the options being considered.

Even the best-case scenario – which would see a deep but short dip in economic activity, described as “optimistic” by the Treasury – would produce a £209billion deficit this year.

The worst-case scenario would see the deficit rise to £516billion this financial year and the national debt rise by a total of £1.19trillion over the next five years.

That would require £90billion in annual tax rises and spending cuts to address.

The document says: “To fill a gap this size [in the public finances] through tax revenue rises would be very challenging without breaking the tax lock.

“To raise fiscally significant amounts, we would either have to increase rates/thresholds in one of the broad-based taxes [IT, NICS, VAT, CT] or reform one of the biggest tax reliefs [eg pensions tax].

“We should also look at opportunities for new taxes that could meet some of the government’s broader policy objectives, raising revenue to relieve long-term fiscal pressures [eg an NHS/social care surcharge or new carbon/green taxes].

“A one per cent increase in the basic rate of income tax would raise around £5 billion p.a.”

The leaked document also states that freezing public sector pay for two years would save £6.5bn and axing the popular triple lock on pensions £8bn a year.

Downing Street sought to play down reports that public sector workers may have their pay frozen to help meet the cost of the coronavirus crisis.

A Downing Street source told a Westminster briefing: “We acknowledge that those on the frontline are doing an incredible job at the moment and we are determined to support them.

“Public sector pay decisions are made through the usual annual process and recommendations from the review bodies will be considered before pay awards are announced this summer.

“I would also say that we obviously recognise the work of the frontline staff in the current crisis and we’re not going to forget that after we’re through this crisis.”

NO AUSTERITY AGAIN

The alternative would be severe austerity cuts like Britain has faced for the past few years.

But last month Boris Johnson ruled out that approach again, saying: “I think that this government will want to encourage that bounce back in all kinds of ways – but I’ve never particularly liked the term [austerity] that you’ve just used to describe government economic policy, and it’s certainly not going to be part of our approach.”

Most experts think the economy will have some “bounce back” in a V-shape for growth, but that the recovery won’t be instant and could take months or even years to get back to normal.

In the worst-case scenario, the economy would go through an “L-shaped” recovery, meaning economic output would stay low for five years, leading to a huge structural deficit which would take years to pay off.

UK coronavirus cases

John O’Connell, chief executive of the TaxPayers’ Alliance, said this morning: “The government has a tough job on its hands in repairing the public finances, but increasing a 50-year high tax burden should not be a part of the plan.

“The government’s help so far has been a lifeline for million of families and thousands of small businesses, but taxpayers must also be protected in the recovery.

“There must be a relentless focus on economic growth, and that should mean a strategic plan for tax cuts and simplification.”

TREASURY WANTS TO ‘ENHANCE CREDIBILITY’

Last night the Treasury dismissed the leak and said the document was just one of many put together by different policy teams to discuss “ideas” about future policy.

It added that it was too early to start considering spending cuts at this stage.

A spokesperson told the telegraph: “The Government’s focus is on supporting families and businesses through this difficult period.

“That’s why we announced an extension to the furlough scheme, which has already saved millions of jobs, earlier.”

Boris Johnson said this week he wanted to encourage everyone who couldn’t work at home to start going back to work.

People should avoid public transport if they can, and everyone must try and stay 2m apart at all times.

Any work places which can’t keep people safe will face action from Health and Safety bosses, they were warned.
Fresh guidance has been issued from the Government to all businesses telling them exactly how they can be as safe as possible in their workplaces.

Yesterday saw the chancellor announce that the current furlough arrangement – under which workers on leave receive 80 percent of their monthly pay up to £2,500 – would be extended until October.

Recent months have seen speculation that the crisis could prompt a return to the austerity of the Coalition years, where Boris Johnson’s time as prime minister has so far been marked by large public spending pledges.

Today’s leak comes after the government also announced a slight easing of lockdown measures, and urged any Brits not able to work from home to return to work.

Boris Johnson has now urged Brits to return to work if they are unable to work from home