Coronavirus: Experts warn of ‘hefty tax rises’ by mid-2020s

Experts have warned the UK will face ‘hefty tax rises’ by the middle of the decade to pay for the coronavirus crisis as Rishi Sunak today unveils his plans to replace furlough and stave off massive job losses over the winter.

The Chancellor will announce his new Winter Economy Plan at lunchtime and its centrepiece is expected to be a wage subsidy scheme which will see the Government top up the pay of people who can only work part-time.      

Mr Sunak’s multi-billion pound package of support is also likely to include further VAT cuts and the extension of emergency loan schemes for struggling businesses. 

The closure of the Government’s furlough scheme at the end of October has sparked dire warnings of waves of redundancies in the coming months with the Treasury due to focus its firepower on saving viable jobs rather than ‘zombie’ ones which have no future. 

Paul Johnson, the director of the respected Institute for Fiscal Studies think tank, said the scale of the coronavirus crisis means Mr Sunak is ‘still very much in blank cheque territory’ as he suggested that the UK could end the year with two million fewer jobs than it had at the start. 

But Mr Johnson warned that the Government’s spending spree will eventually have to be paid for as he predicted ‘pretty hefty tax rises’ likely by the mid-2020s.              

Official statistics published last month showed public sector debt had gone above £2 trillion for the first time in history as the Government was forced to borrow cash to keep UK plc afloat.

The Office for Budget Responsibility’s most recent forecast suggested public sector net borrowing for the financial year April 2020 to April 2021 could be anywhere between £263 billion to £391 billion. Mr Sunak’s new measures will only worsen the state of the public finances.  

Health Secretary Matt Hancock today reiterated that the latest support package will not be enough to save everyone from redundancy and all firms from closure as he said ‘sadly we’re not able to protect every job and every business’.  

The Chancellor yesterday cancelled plans for a full-scale Budget in November, with sources saying it was ‘not the time’ for a long-term strategy.

Instead he will map out an emergency plan designed to help firms cope with new Covid restrictions which Boris Johnson has warned will last for six months.

Whitehall sources last night said the Chancellor’s plans would include a new wage subsidy scheme modelled on a German initiative that helps fund salaries at firms where there is only enough work to go back part-time.

Government officials are looking at whether the state can help cover the costs for staff able to do 50 to 60 percent of their normal hours, according to the Financial Times, which would be considerably cheaper to run than the furlough scheme that has cost almost £4 billion in the last four weeks.

By comparison, the German kurzarbeit (short- working) model would cost around £500 million a month.

The so-called ‘flexible furlough’ scheme would allow for companies to hack back workers’ hours while keeping them on their books, with the Government making up the difference but with a cap for salaries up to around £30,000, according to the Sun. 

Ministers are also looking at a bailout scheme for struggling sports clubs hit by a ban on crowds. This year’s VAT cut for the hospitality and tourism industry to 5 percent, which has cost £4 billion, was due to last until January but will now run until the end of March, The Times reported.

Mr Sunak’s unveiling of his Winter Economy Plan came as: 

• Mr Hancock said he did not rule out the prospect of telling university students not to go home at Christmas but that ‘we haven’t reached that point yet’. 
• The Health Secretary said almost 10,000 people a day are now contracting coronavirus, although still fewer than the ‘100,000 per day’ estimated during the spring peak. 
•  The Government finally launched its long-promised coronavirus app across England and Wales. 
•  Nicola Sturgeon has written to Boris Johnson calling for urgent four-nation talks to tighten lockdown restrictions to tackle the spread of coronavirus. 
• A group of MPs urged the Government to take action to address the health, wellbeing and employment arrangements of people living with the effects of ‘long Covid’.
• The Government is considering introducing a new traffic light system that will send automatic alerts to people’s mobile phones to trigger local lockdowns. 

The Government’s furlough scheme has helped support almost 10 million jobs during the crisis, covering up to 80 per cent of an employee’s wages up to a maximum of £2,500 a month.

It is now in the process of being wound down and will formally close at the end of next month after racking up a bill of more than £39 billion.

Mr Sunak has faced pressure to extend the scheme but he is expected to press ahead with scrapping it and will use the wage subsidy scheme to pick up some of the slack.  

Mr Johnson said the end of furlough means there will be a ‘big rise in unemployment’ in the coming months.   

He told the BBC’s Radio 4 Today programme: ‘We have already seen something like a reduction of nearly three quarters of a million numbers of jobs in terms of the number of people on payroll and then we have got at least another two million or so on furlough not working.

‘Some of those will likely be supported by this new scheme but not all of them.

‘That implies I suspect by the end of the year that we will have something like, I don’t know, but maybe two million jobs fewer than we had at the beginning of the year, although oddly that doesn’t seem to be translating at the moment into the official unemployment figures.’

Asked whether he believed Mr Sunak should be writing a blank cheque to save the economy or trying to protect the health of the public finances, Mr Johnson said: ‘I think we are still very much in blank cheque territory. I thought it was very bizarre I have to say a month or so ago when everyone was talking about big tax rises being announced this autumn.

‘I don’t think that was ever on the cards. We are still in a position where the economy is extremely weak, where the Government as you know is increasing restrictions and where the absolute focus needs to be on supporting the economy.

‘Remember, interest rates are at all time lows, it is actually extremely cheap for the Government to borrow and we are in that crisis moment.

‘That means clearly we are going to have to deal with this at some point but at some point does not mean this autumn and it might not even mean next year.

‘But I think later on in the 2020s we are going to be seeing some pretty hefty tax rises to deal with this. But it really is later on, it is not now.’

Mr Hancock said the economic support to replace the furlough scheme, due to be announced later today by Chancellor Rishi Sunak, had been set in train since the summer.

He told Sky News: ‘What you’ve seen over the past nine months since this crisis started, you’ve seen an unprecedented amount of economic support to keep jobs going, to support businesses that have been terribly hit by this, and we’re determined that that should continue.’

Asked why the Chancellor has waited until nearly October to announce the new measures, Mr Hancock said: ‘We’ve said throughout that sadly we’re not able to protect every job and every business.

‘But I think in terms of the timing of this, we’ve been working on the winter plan for the economy and options in case cases started to go up again since the summer and with the Prime Minister having set out the next steps in terms of the health side on Tuesday, now the Chancellor is coming to the House today – two days later – to set out the economic package for the winter plan that goes with that’        

Mr Hancock told the BBC that the Government would ‘put in the absolute maximum economic support’ it could. 

Asked why Mr Johnson had suggested the latest coronavirus crackdown could last for six months, the Health Secretary said: ‘I think it’s really important to level with people. I think it’s really important for us in Government, leading people through this very difficult time, to be straight with people about what we see as the problems ahead and the timetable ahead.

‘We want to give hope with what’s coming – you know what, we can get through this – of course we do. But we also need that hope to be grounded in realism, because if it’s not grounded in realism, then it’s not true.’

Treasury sources said the Chancellor had rejected calls to extend the £35billion furlough scheme, despite warnings that its closure at the end of next month could result in more than one million redundancies.

‘The Chancellor has shown he has been creative in the past and hopes that people will trust us to continue in that vein,’ a source said. ‘Giving people reassurance and businesses the help they need to get through this is uppermost in his mind.’ 

Mr Sunak played a pivotal role in helping persuade Mr Johnson not to move to an immediate second lockdown this week.

But the decision to tighten Covid restrictions on the hospitality sector and order millions of office staff to work from home until spring has put him under huge pressure to bring forward more support.

Today he is expected to warn that the Treasury does not have a bottomless pit of money to prop up the economy indefinitely – and cannot save every job.

Allies said he would be ‘very honest with people’ about the ‘difficult trade-offs’ the Government faces as it tries to deal with the twin challenges of surging Covid cases and a battered economy.

‘It is not about health versus the economy, but about the balance between keeping people in jobs and finding them new ones,’ the source said.

The Treasury was tight-lipped about the Chancellor’s plans last night. But it is understood he will press ahead with a version of Germany’s ‘kurzarbeit’ scheme, which ensures workers who have had their hours cut by struggling firms receive a minimum of 60 per cent of their lost pay.

A similar scheme proposed by the Confederation of British Industry would see subsidies for firms that can offer staff at last 50 per cent of their normal hours, with the cost for non-working hours shared equally by the company, the Treasury and the employee.

The final scheme is likely to be significantly cheaper than furlough, which has paid 80 per cent of the wages of staff unable to work and helped protect 9.6million jobs. But it will fall short of demands from Labour and the unions for the furlough scheme to continue indefinitely.

In the Commons yesterday, Mr Johnson was repeatedly urged to extend the furlough scheme in the wake of his decision to tighten Covid restrictions for at least six months. 

Labour leader Sir Keir Starmer urged him to ‘stop and rethink, support the businesses affected, not to withdraw furlough’.

Mr Johnson said the furlough scheme had ‘already been extended’ once, adding: ‘I do not think that it would be sensible simply to extend the current existing furlough scheme in its present form beyond the end of October.

‘But we will do everything we can to support businesses and to support those in jobs and, indeed, the self-employed.’

Mr Johnson said the Government had already paid out £160billion to prop up the economy, with business support more generous than in most other countries.

Entrepreneur and former Pizza Express boss Luke Johnson told the BBC’s Newsnight programme that closure of the furlough scheme at a time when the economy was still operating under tight restrictions would lead to mass redundancies next month. ‘I would estimate of the three million [still on the furlough scheme], at least a million… will be made redundant,’ he said.

The decision to cancel the Budget is a blow to the Treasury’s hopes of getting the public finances back on a more even keel.

Mr Sunak had been considering tax rises to help offset a budget deficit expected to top £300billion this year. But decisions on tax will now have to be delayed until next year.

The cancellation of the Budget could also prove a blow to the aviation industry, which had been hoping for a cut in Air Passenger Duty.

A Government source last night told the Mail that ministers were also looking at a rescue package for threatened football and rugby clubs.

‘We cannot have a situation where local football clubs are going to the wall,’ the source said. ‘They and other similar sports clubs are critical parts of their communities.’  

A price we can’t afford to pay: Billions for a new bailout, the Budget cancelled, a ‘wipeout’ over home working and diagnosis of other illnesses plummeting… critics lay bare the cost of Boris Johnson’s six-month covid clampdown 

By Daniel Martin and Jason Groves

The horrifying cost of Boris Johnson’s six-month Covid clampdown was dramatically laid bare last night.

Business chiefs and hospitality groups issued a string of dire warnings over the impact of the restrictions, saying millions of jobs were now on the line.

They said the Prime Minister’s U-turn on his ‘get back to work’ message could spell doom for struggling high streets, with footfall plummeting and shops boarded up.

In a passionate intervention, a prominent entrepreneur said the prosperity of the nation was at stake. 

Julian Metcalfe, who founded Pret A Manger and Itsu, said: ‘The repercussions of this six months are going to be devastating to so many, to local councils, to industry, to people all over our country.

‘We have not begun to touch the seriousness of this. This talk of six months is criminal.’

Despite ballooning national debt, Rishi Sunak is preparing a multi-billion-pound ‘winter economy plan’ to try to protect jobs.

The Chancellor signalled the true extent of the crisis by cancelling plans for a full-scale Budget in November. Sources said he accepted the country could no longer make long-term financial decisions.

As the Archbishops of Canterbury and York warned of the economic costs of Covid:

• Hospitality groups said a quarter of pubs and restaurants could go bust this year;
• HMRC and Goldman Sachs were among employers abandoning their drives to get people back to the office;
• Pictures showed high streets boarded up as shops reacted to the clampdown;
• The travel industry faced fresh despair when Downing Street warned of the risk of booking half-term holidays;
• Upper Crust and Caffe Ritazza are keeping two thirds of outlets shut;
• A major study warned countless patients were living with worsening heart disease, diabetes and mental health because of the lockdown;
• MPs demanded extra help for theatre and music venues;
• No 10 said a ban on household visits could be extended across large swathes of England;
• A mobile tracing app is finally being rolled out today – four months late;
• Matt Hancock’s target for half a million virus tests a day by the end of next month was under threat from equipment shortages;
• Scientific advisers suggested that students could be told to remain on campus over Christmas.

In a dramatic television address to the nation on Tuesday, Mr Johnson announced he was abruptly dropping his call – made repeatedly since the end of lockdown – for workers to return to the office. He also told pubs and restaurants to shut their doors at 10pm, and doubled fines for not wearing a mask or failing to obey the rule of six.

He indicated the measures were likely to last for six months at least.

Mr Metcalfe led the backlash against the curbs on BBC Radio 4’s World at One, saying he did not know whether Itsu could survive the measures.

He added: ‘People who work in hotels, restaurants, takeaways and in coffee shops are devastated. A great many are closing down – we’re losing thousands upon thousands of jobs. 

‘How long can this continue, this vague “work from home”, “don’t go on public transport”? The ramifications of this are just enormous.’

Mr Metcalfe accused the Prime Minister of ‘sitting down with his Union Jack talking utter nonsense’.

He said: ‘To turn to an entire nation and say “stay at home for six months”, and to spout off Churchillian nonsense about we’ll make it through – it’s terribly unhelpful. It should be “we will review the situation each week, each hour”.’

Tory MP Desmond Swayne said the Government had made the wrong call, adding: ‘I am concerned the cure could be worse than the disease.’

Tom Stainer, chief executive of the Campaign for Real Ale, warned the clampdown could see the closure of many pubs. 

‘Pub-goers and publicans alike want to stop the spread of Covid, but this curfew is an arbitrary restriction that unfairly targets the hospitality sector and will have a devastating impact on pubs, jobs and communities,’ he added.

Rob Pitcher of Revolution Bars said: ‘It’s beyond belief that they have brought in the 10pm curfew with no evidence to back it up.’

Fashion mogul Sir Paul Smith warned the pandemic was proving devastating to his and other industries.

A former head of the civil service will today say Mr Johnson’s government has proved incapable of combating Covid.

Lord O’Donnell, a crossbench peer, will say in a lecture that ministers did not use adequate data and deferred too much to medical science at the expense of behavioural and economic experts. 

He will also allege there has been a lack of strong leadership and clear strategy.