Rishi Sunak ‘is considering raising fuel duty by as much as 5p’ to pay nation’s Covid bill

Rishi Sunak is considering raising fuel duty by as much as 5p to pay the nation’s coronavirus bill, a Treasury source has claimed.

The Chancellor is looking at axing a ten year freeze on the tax in his autumn Budget, which would see fuel prices rise by 2p immediately in line with inflation.

But a Treasury source told The Sun that a further 3p could be slapped on the pumps as part of desperate measures to balance the books.

One Cabinet minister last night warned that increasing tax at a time when the economy was crying out for growth would be ‘like acid rain falling on the green shoots of recovery.’ 

The unnamed minister told The Telegraph: ‘This is not the time to be increasing tax. The cost of coronavirus is a one-off, and to pay off the debt you have to grow the economy. We should be looking to cut corporation tax and other taxes to increase transactions.

‘Putting taxes up now would be like acid rain falling on the green shoots of recovery.

‘If you increase capital gains tax, for instance, people will just stop selling their assets, so you will get less tax revenue.’ 

The respected IFS think-tank yesterday said the focus for the government over the next ‘couple of years’ should be on propping up the economy rather than tackling the deficit.

The intervention came after briefing that the Treasury is looking at increasing big revenue raisers such as corporation tax and fuel duty to bring in £30billion a year. 

There are also rumours the Chancellor will drop the legal commitment to spend 0.7 per cent of national income on foreign development as part of desperate efforts to balance the books.

Instead the move – which would delight many Tory MPs – would see cash diverted to Foreign Office and Ministry of Defence projects, according to The Sun.  

Speculation has been swirling about the fate of the aid budget, as the government struggles to manage spiralling debt from recession and huge coronavirus bailouts.

As PM, David Cameron enshrined the international goal, first agreed by Tony Blair, in domestic law.

However, some believe the spending should be given the scale of the hit from the pandemic. 

The Chancellor reportedly wants to use the Budget in November to announce he intends to abolish the lock. 

Mr Sunak is said to believe he has the backing of Boris Johnson and Foreign Secretary Dominic Raab – who is now in charge of the aid budget after DfID was scrapped. 

Primary legislation would be needed to remove the existing commitment, and the step would also face opposition from Conservatives. 

Former minister Tobias Ellwood said: ‘It’s shortsighted in failing to appreciate how well targeted aid can strengthen relationships & open up new markets – thus helping the Treasury. 

‘Cutting aid also fuels instability which impacts on the UK. Let’s think strategically.’ 

The signals come amid claims Mr Sunak is plotting a huge tax raid in to shore up the finances.

Fuel duty, capital gains tax, corporation tax, the pension triple lock and pension tax relief are all said to be in the firing line.

The Treasury insists no decisions have yet been taken by ministers about how to deal with a deficit expected to top £300billion this year.

But the IFS think-tank warned this morning that there should not be any tax hikes for years, as the economy reels from the blow of lockdown.

Director Paul Johnson told BBC Radio 4’s Today programme that ‘at some point’ the Chancellor will need to raise more revenue.

He said the government’s focus should be on supporting the economy for a ‘couple of years’ rather than dealing with the deficit. 

One Cabinet minister said the Chancellor would face a revolt if he pressed ahead with the tax grab.

‘Tax rises of this sort would be the worst possible economic policy to adopt right now,’ the minister said. 

‘It would guarantee a much deeper recession. Large parts of the economy are still fragile – we need to nurture it, not throttle it.’