On March 3, the Chancellor of the Exchequer, Rishi Sunak, faces one of his biggest challenges yet.
Sunak, who has been in Number 11 for little over a year, is set to use his budget to deliver an “open and honest” plan as to how the United Kingdom can start its post-pandemic economic recovery.
Whilst the Financial Times had previously reported that Sunak had agreed to adhere to the Tory “triple tax lock” – on income tax, national insurance and VAT – there is now growing speculation that the Chancellor will raid the pockets of the British taxpayers to bring the nation’s Covid-induced deficit under control.
Instead, it is understood that Sunak, who succeeded Sajid Javid in February 2020, has spent time considering tax rises that will disproportionately affect savers and entrepreneurs.
Just two weeks ago, The Telegraph exclusively revealed that the Chancellor has reviewed an extortionate increase in the capital gains tax from 28 per cent to up to 45 per cent.
Last month, The Times reported that Sunak also looks set to tamper with the UK’s corporation tax rate and may partially reverse the tax slash introduced under his predecessor George Osborne.
Such a move may put Sunak at odds with the Prime Minister. Whilst Boris Johnson ruled out reducing corporation tax from 19 to 17 per cent in his first few days at Number 10; it is now believed that the Prime Minister has suggested alleviating the tax burden on British businesses in a bid to take advantage of Brexit “opportunities”.
Now the Institute for Fiscal Studies, an independent economic think-tank, has implored Number 11 to extend the furlough scheme for specific industries, expand the Self Employment Income Support Scheme, and keep the £20 weekly boost to Universal Credit whilst keeping taxes down.
The former Brexit Secretary, David Davis, is amongst the most critical Tory MPs. In the Mail on Sunday, he wrote that “Now is not the time to stifle productivity with damaging tax increases” and instead called upon the government to significantly reduce the tax burden as President Ronald Reagan did in the 1980s.
Unsurprisingly, Davis was joined by fellow Eurosceptic and unrepentant Thatcherite, Sir John Redwood, who said: “I’m all for fiscal discipline, but you can only have a chance of fiscal discipline if you rebuilt the economy first.”
The pair are also joined by the Labour Party frontbench who have recently pivoted to oppose any tax rises during the Covid-crisis.
In an interview with The Times, Sir Keir Starmer said: “In the short term, you don’t balance the books and you don’t choke off the recovery by raising taxes on the one hand or reverting to austerity on the other. You’ve got to get your economy to thrive.”
However, Sunak and his supporters have reportedly suggested any delay in balancing the books would be politically and economically injudicious.
Instead, the Chancellor hopes to plug the “scarring effect” of Covid on Britain’s public finances at source and utilise his fiscal prudence to distinguish the Tories from Labour in 2024.
One colleague of the Chancellor argued: “You can’t just pop up in three years and say that’s the time to start balancing the books”.
Forecasters at the Office for Budget Responsibility estimate that national borrowing will hit a whopping £394 billion by the end of the financial year, far higher than during the peak of the 2008 financial crash.
Nevertheless, throughout the pandemic, Sunak’s personal and political popularity has held firm. Polling conducted by Ipsos MORI found that Sunak’s net approval rating throughout the pandemic gives him the highest satisfaction rate of any Chancellor since Labour’s Denis Healey in April 1978.
Public support for Sunak’s handling of the pandemic stands at a positive net approval rating of 35 per cent.
By comparison, many of his cabinet colleagues lag behind.
The Health Secretary, Matt Hancock, registered a -1 per cent rating and the Prime Minister himself fares even worse on -7 per cent.
The Chancellor’s approval rating means that, whilst he has repeatedly insisted that he “definitely” does not want to be Prime Minister after Boris Johnson, many consider him the natural successor.
Currently, ConservativeHome’s league table indicates that the Chancellor is the second most popular cabinet member, trailing the international trade secretary, Liz Truss, by just 4 per cent.
But the upcoming budget poses the first of many significant challenges to Sunak’s future prospects.
He will have to contend with the growing number of Tory backbenchers who want him to move away from tax rises, the political posturing of the Labour Party, and the views of the psychologically drained British public, all whilst considering how to navigate Britain through its biggest fiscal challenge in a generation.