Rishi Sunak today clobbered families with stealth tax rises while slashing billions of pounds from Whitehall spending.
The Chancellor set a six-month deadline to bounce back from Covid-19 as he bowed to pressure to extend the temporary Universal Credit rise for the poorest families.
But the “lifeline” will run out at the same time as the furlough scheme is axed – stripping the poorest households of £20 a week just when bosses are making workers redundant.
Furlough will be scaled back from July, when employers will be expected to make a contribution.
It is due to end altogether just two months later – even though the Government’s own economic forecasters warned up to two million workers will still be relying on it.
The Office for Budget Responsibility predicted furlough claims by companies will fall from five million this month to two million in September.
Mr Sunak turned to stealth taxes to pump cash into Treasury coffers because a Conservative manifesto pledged blocked him from hiking the 20% basic income tax rate and 40% higher rate. Instead, personal tax-free earnings thresholds will be frozen to boost revenue.
The point at which people begin paying income tax will increase by £70 to £12,570 in April, but will stay at that level until April 2026 – meaning more people will be dragged into paying tax as wages increase, including an estimated 1.3 million low earners.
The 40p rate threshold will increase by £270 to £50,270 and also be frozen.
The Institute for Fiscal Studies said the freeze would pump £1.5billion into the Treasury in its first year and £8bn annually by 2025/2026.
Director Paul Johnson warned “we are in a new phase of UK economic history” and “taxes [are] likely to be at their highest sustained level”. The overall tax burden will hit its highest peak for more than 50 years.
In his 52-minute Commons speech, the Chancellor spoke about the need to repair the Treasury’s battered finances, with figures showing borrowing hit £355bn this year – the highest percentage of national income since the Second World War.
Next year it will be £234bn.
He said measures to support the economy through the pandemic had cost £407billion since last March. But he said the spending could not continue and claimed he had to be “honest” about putting the nation’s finances on a sustainable footing.
The IFS said the Chancellor “is planning to spend £14bn to £17bn less on public services each year after 2021 than he had planned pre-Covid”.
Research economist Ben Zaranko said: “Given the substantial and mounting pressures on the NHS, schools and other services, one has to wonder whether these spending totals have been set implausibly low to flatter the public finance forecasts.”
Mr Sunak will hammer the hospitality industry next April just as hotels, B&Bs, pubs and restaurants are gearing up for their first Easter season in three years.
A temporary 5% VAT rate will be lifted to 12.5% from September and hiked back to 20% in April 2021. To repay Red Wall voters, Mr Sunak announced the creation of eight freeports – special economic zones with rules which supporters claim makes it cheaper and easier to do business.
But he triggered a row over “pork-barrel politics” with an announcement of more than £1bn for 45 “new town deals” which will be prioritised for the “levelling-up fund”.
Early analysis suggested the vast majority were Conservative-held constituencies – prompting claims the Government was funnelling taxpayers’ cash into Tory seats.
The Chancellor was accused of dodging tough choices after deciding to leave alcohol and fuel duties untouched. A widely-tipped rise in corporation tax – paid on companies’ profits – was put off until 2023, when it will rise from 19% to 25%. The smallest firms which make less than £50,000 profit will be spared the hike. Mr Sunak also scrapped a planned increase in fuel duty, a move blasted by environmental campaigners for failing to tackle the climate crisis.
Mike Childs, head of policy at Friends of the Earth, said: “It is astonishing that a government pledging to confront the climate emergency has frozen fuel duty yet again. No wonder cars’ contribution to the climate crisis has barely fallen in the past decade.”
Labour leader Keir Starmer said the Budget was a “quick fix, papering over the cracks” which “didn’t even attempt to rebuild the foundations of our economy or to secure the country’s long-term prosperity”.