Rishi Sunak has indicated he will extend emergency support packages as the coronavirus lockdown is unwound, and did not rule out first raising taxes before cutting them ahead of the next election.
Mr Sunak insisted ahead of the announcement next week that he is in favour of low taxes but said he needs to repair the public finances from the “enormous shock” of the pandemic.
He said he does not “recognise” suggestions he told MPs in private that he would raise taxes now before cutting them in a pre-election Budget and said it would be “brave” to predict the situation in three years’ time, but he did not rule out the possibility.
Labour accused him of “playing politics with the recovery”.
Mr Sunak said he must “level with people”, with Covid having had an “enormous hold on our economy” that will cause debt to “rise indefinitely” if borrowing continues after the recovery.
But he suggested current support packages for jobs and businesses, such as the furlough scheme due to expire at the end of April, would continue as England comes out of the national lockdown in the coming months.
He said he wants to “support people and businesses along that path” to ending restrictions steadily until June 21, as set out by Prime Minister Boris Johnson.
“We went big, we went early and there’s more to come next week,” Mr Sunak told Sky’s Sophy Ridge On Sunday.
The Chancellor was pressed on whether he had told Conservative MPs in private that he would seek to raise taxes now and then cut them before the election.
“I think in the short term what we need to do is protect the economy and keep supporting the economy through the road map, and over time what we need to do is make sure our public finances are sustainable,” Mr Sunak said.
“That isn’t going to happen overnight, that’s going to be work that takes time given the scale of the shock that we’ve experienced but if you’re asking do I want to deliver low taxes for people, of course I do.”
But, after a break, he altered his response to the BBC when asked again about the remarks he was reported to have said by the Sunday Times.
“No I don’t recognise that and I think anyone given the shock that we’ve had over the last year and the economic uncertainty we face, it would be brave for people to know exactly what was going to happen in three years,” he The Andrew Marr Show.
Treasury sources did not deny the newspaper’s report, suggesting the Chancellor plans to raise £6 billion by freezing income tax thresholds for at least three years.
He was said to be considering a freeze on the £12,500 point at which people start paying the basic rate of income tax and the £50,000 threshold where they begin paying the higher 40p rate, as he aims to raise £43 billion a year.
The move would allow Mr Sunak to raise extra funds without breaking the manifesto pledge that guaranteed the Conservatives would not raise the “rate” of income tax.
But it was estimated the move would push an extra 1.6 million people into a higher tax bracket before the next general election is due in 2024.
Mr Sunak said he cannot talk about tax outside the Budget and declined to say whether he would stick by the manifesto pledge not to increase the rate of income tax, VAT or national insurance.
The Government is braced for the possibility of a rebellion from Tory MPs over any tax rises, with backbenchers being warned they could be kicked out of the parliamentary party if they vote against the Budget.
After Labour leader Sir Keir Starmer said “now is not the time” for tax increases, shadow chancellor Anneliese Dodds said the party would consider backing an increase on corporation tax “if we see a long-term plan”.
“What the Conservatives are doing now though isn’t setting out that long-term plan to rebalance our tax system, in fact they’re kicking the can down the road when it comes to business rates reform,” she told Ridge.
She said the Chancellor “is trying to get any tax changes out of the way quickly, get them out of the way, so that they can then have a general election when they can cut taxes”.
Labour’s shadow chief secretary to the Treasury Bridget Phillipson went further to accuse him of “playing politics with the recovery, threatening hard-hit businesses and families with immediate tax rises now just so he can cut them before the election”.
Ahead of the Budget this week, Mr Sunak announced that pubs, restaurants, shops and other businesses hit hardest by the coronavirus pandemic will be boosted by a £5 billion grant scheme to help them reopen as the lockdown is eased.
The “restart grants”, which were called for by this newspaper, will be worth up to £6,000 per premises to help non-essential retailers reopen and trade safely, with 450,000 shops expected to be eligible.
Around 230,000 hospitality companies, hotels, gyms, as well as personal care and leisure firms, are estimated to be eligible for up to £18,000 per premises as they are due to open later under the plans for easing lockdown.