Rishi Sunak is reportedly planning on freezng benefits and public sector pay as a part of a bid to offset the Treasury’s coronavirus spending.
The government has spent around £190bn in emergency Covid-19 funding, which has put this year’s budget deficit at an estimated £350bn – 12-times higher than pre-crisis expectations.
Media speculation has been rife that Sunak is looking at increasing taxes in the autumn budget – through rises in capital gains tax, corporation tax and inheritance tax – with a view to cutting them before the next election.
The Mail on Sunday now reports that Sunak is considering scrapping yearly inflation-linked rises in welfare payments and public sector pay, while he is also trying to convince Boris Johnson of dropping the pension “triple lock”.
The triple lock sees pensioners’ payments rise every year of the largest of inflation, average wage increases or 2.5 per cent.
A Treasury insider told the Mail: “Rishi has been absolutely adamant in private that he will have to be able to balance the books after this is all finally over.
“Hospitals and schools will be protected, but something has to give somewhere.”
A Treasury ally of Sunak told the Mail that the government would not be returning to an era of austerity.
Sunak is also under pressure from various business groups and Labour to extend the furlough scheme for some sectors past the end of next month.
Sunak and Johnson both gave hints this week that they may be willing to extend support for the sectors that have been worst hit by coronavirus – such as retail, hospitality, leisure and aviation – past next month.
They both assured MPs that the government would show “flexibility and creativity” in dealing with the economic challenges of Covid.
When asked by a parliamentary committee if the government would extend the scheme for some sectors, Johnson said: “We will continue to show great creativity and flexibility, which the chancellor has shown, to try to look after every sector of the economy.
““I don’t believe that anybody on this committee seriously imagined the government of this country would come up with something imaginative as the furlough scheme six months ago and we will continue to apply the same levels of imagination.”
“We are going to fight for every sector of the economy”.