Treasury insiders said Sunak and chancellor Jeremy Hunt agreed on Monday that while “those with the broadest shoulders should be asked to bear the brunt”, everyone’s taxes would rise. A finance ministry official said after the bilateral meeting: “It’s going to be rough. The truth is that everyone will need to contribute more in taxation if we are to maintain public services. “After borrowing hundreds of billions of pounds through Covid-19 and implementing massive energy bill support, we won’t be able to fill the fiscal black hole with spending cuts alone.” A big “stealth” tax increase could be achieved by extending the four-year freeze on tax breaks and thresholds that Sunak announced when he was chancellor in Boris Johnson’s government until 2021. With high inflation, the ‘fiscal drag’ effect means that millions of people will be drawn into the tax system for the first time or into higher tax brackets each year. Extending the freeze would raise around £5 billion a year until 2027-28. Hunt has already canceled plans to cut the basic rate of income tax by 1 percentage point from 20 to 19 p.m., which Sunak – as chancellor – had promised to introduce in 2024. Treasury officials said there was a “vibrant fiscal black hole” as they sought to prepare the public for tough economic news when Hunt delivers the autumn statement on November 17. When former Tory chancellor George Osborne imposed austerity in the wake of the banking crisis at the start of the last decade, he carried out fiscal consolidation with an 80-to-20 ratio of spending cuts to tax rises. Hunt is looking at a mix that will be closer to 50-50, according to Treasury insiders. After the meeting, Hunt and Sunak “reiterated their commitment to continue to protect the most vulnerable during a difficult period,” the finance ministry said. A financially attractive tax increase for Mr Sunak would be to return to his original plan to increase National Insurance by £13bn, a measure that would have the biggest impact on the wealthiest people. However, Kwasi Kwarteng, a former chancellor, decided to prevent the rise of NI and MPs have already voted for it, with Labor siding with Tory MPs in deciding it should not go ahead. Sunak’s allies admit it would be politically problematic to ask Tory MPs to vote to increase NI after all, not least because they have already voted to raise it once before before being asked to vote to cut it. “It’s politically difficult to get everyone up a hill again when they’ve already been up and down once before,” admitted a Sunak ally. However, the NI issue remains “on the table” as do other tax measures, according to those close to the Autumn Statement negotiations. Hunt has already overturned Kwarteng’s plans to cut the top rate of tax by 45% on earnings above £150,000, but Hunt is likely to go further in targeting the best. Recommended The three big ‘tax levers’ for any chancellor are income tax, national insurance and value added tax. Raising VAT in the midst of a cost of living crisis would be a politically risky move. Downing Street said “significant progress” had been made to limit tax rises and spending cuts planned for the November 17 budget event. Meanwhile, Downing Street said Sunak was considering attending the COP27 summit in Egypt next week, having previously said he would be too busy preparing the autumn statement.
