Making £20 Universal Credit uplift permanent could cost many households up to £350 in tax

A £20 uplift in Universal Credit could cost up to £350 for many households, according to figures circulated by Treasury sources, amid a mounting row over welfare spending.

Ahead of a vote forced by Labour on Monday evening, Conservative MPs have been urged to consider the impact of making the temporary increase permanent on the public finances, which have already been ravaged by the coronavirus pandemic.

MPs in former Labour ‘Red Wall’ seats have now signalled they will obey instructions to abstain in the opposition day debate, but are still calling on the Chancellor Rishi Sunak to keep the uplift until coronavirus restrictions are eased.

The Government increased the benefit payments for nearly six million people in March to help families cope with the coronavirus crisis, adding an extra £1,040 to claimants’ annual incomes.

With lockdown restrictions still in place, there are differing opinions in Government over extending the uplift beyond its current end date of April, with some ministers concerned that it could become permanent.

Therese Coffey, the Work and Pensions Secretary, is leading calls for an extension, while the Chancellor Rishi Sunak is pushing for other options to be considered, such as a one-off lump sum payment.

Sources close to Mr Sunak insist all options remain on the table and that he has not ruled out an extension.

Mr Johnson, who is still be weighing up the options, is likely to make a decision in the coming weeks before the Chancellor makes a formal announcement at the Budget in March.

However, ahead of Monday’s debate, Treasury sources have warned that the cost of a permanent uplift in Universal Credit and Working Tax Credit will cost £6bn annually and will likely need to be funded through tax rises.

Floating two options, the insiders point to a 1p increase in income tax for 30 million taxpayers as well as a 5p hike in fuel duty as one example of how an uplift could be funded.

This would translate to £175 every year for someone earning £30,000 - roughly the same as the median UK income - meaning a household where two people are employed full-time could face a £350 increase in tax.

Alternatively, the Treasury figures suggest that VAT could be increased to at least 21 per cent, adding approximately to £200 to household bills.

One Tory MP backing the Chancellor told The Telegraph: “Tory MPs know they voted for a temporary measure. To make a permanent change to Universal Credit of this scale across the board...the cost of this is very substantial.

“It’s a lot of lolly and it’s the equivalent of 5p on petrol and 1p on the basic rate of income tax.”

Meanwhile, Allegra Stratton, the Prime Minister’s press secretary, accused Labour of pulling a "political stunt" over their planned debates on Universal Credit and free school meals.

With the Prime Minister urging his MPs to abstain, she added: "MPs are being told to abstain because today is not the day when we will be announcing our next steps on the £20 Universal Credit uplift.

"This is an Opposition day debate. It is them making families up and down the country concerned they will not be able to get the food they might need during the February half-term, when that is not true.

Hitting back, Sir Keir Starmer branded the decision to abstain “pathetic”, adding that in their heart of hearts" Tories would back Labour's move.

“We're still in the middle of a pandemic and the Government wants to get rid of that uplift which is vital to families,” he continued. “It's the wrong thing to do."