Rishi Sunak is under increasing pressure from Conservative “red wall” MPs to go beyond existing support for the UK economy in Wednesday’s budget and cut taxes for thousands of retailers.
MPs across the political spectrum are increasingly uneasy that he may introduce income tax rises for middle earners, and the chancellor is facing calls from 45 northern Tories to make “a bold move to reduce business rates”.
The calls come as Sunak prepares for a major test on Wednesday as he seeks to find an extra £43bn to plug a hole in the UK’s post-pandemic finances while allowing the economy to recover from a third lengthy coronavirus lockdown.
It comes after he indicated in interviews on Sunday that emergency support measures such as the furlough scheme will be extended beyond the end of April and ruled out speeding up the easing of lockdown.
Members of the influential Northern Research Group of Conservative backbenchers, which is led by the former minister Jake Berry, have written to the chancellor saying there is a need for “levelling the playing field between bricks and mortar and online retail”.
They are demanding that business rates are reduced from about 50% of market rent to around 35% to help achieve this.
“With many of our town centres hit particularly hard by the Covid-19 pandemic, now is the time for a bold move to reduce business rates nationally,” the MPs have written in a letter to Sunak.
“We need to make sure that once people can go shopping again, they have high streets to go back to.”
The chancellor is expected to announce on Wednesday that he is freezing for at least three years the point at which people start paying the basic rate of income tax – £12,500 – and the £50,000 threshold at which they begin paying the higher 40p rate.
Separate from the budget, Sunak has confirmed he is considering targeting online retail giants like Amazon with a sales tax but said it would be introduced as part of a business rates review expected later in the year.
Tory MPs are believed to be deeply uncomfortable with the idea of increasing taxes on middle earners.
One former minister said Sunak should bring forward a tax on Amazon and other online retailers instead: “You have to wonder how many small businessmen, NHS doctors and other public sector workers will be hit by this income tax proposal. Why let Amazon off the hook while the people who worked through the pandemic go to the wall?”
Business leaders are also dismayed that tax rises, including vital VAT cuts for the hospitality industry, will end before firms have been given a chance to recover.
Adam Marshall, the head of the British Chambers of Commerce, warning of the potential for a lifeless recovery, said: “Confidence is important and if the government is saying that considerable tax rises are coming down the track then entrepreneurs and businesses hearing that will take heed and cut back their ambitions.”
In a major shift in policy from Labour’s last manifesto, the shadow chancellor, Anneliese Dodds, will demand on Monday that Sunak does not increase taxes and ensure that key workers are not left out of any recovery.
Speaking to Bloomberg in central London, she will describe the Covid crisis as a “wake-up call” after a year of “last-minute scrambles, of U-turns, waste and mismanagement”.
“The chancellor’s message to our key workers – our teachers, our police officers, our armed forces personnel – at the end of one of the hardest years in living memory, is to say: you deserve a real-terms pay cut. That is spectacularly unjust. It’s also economically illiterate.
“From the IMF and the World Bank to the OECD, every major international economic organisation is in agreement: now is not the time for tax rises on struggling businesses or families.”
On Sunday Sunak implied he will extend the furlough scheme. Asked by Sophy Ridge on Sky News, he said: “I said at the beginning of this crisis that I would do whatever it took to protect people, families and businesses through this crisis and I remain completely committed to that. The PM in the roadmap set out a path for us to recover and reopen and I want to support people and businesses along that path.
“I’m not going to comment on specific policies but I want to make sure people realise that we are going to be there to support them and if you look at our track record we went big, we went early and there’s more to come next week.”
In the interview, Sunak ruled out speeding up the easing of lockdown even if data showed an improvement in the situation.
“What we want is a cautious but irreversible approach. That’s why we’ve taken the approach that we have and those will be the earliest dates that we think we can do the various things we’ve laid out. But we’re doing everything we can to make sure that it is hopefully irreversible; that’s what we want to see.
“What businesses don’t want is a stop-start approach to this,” he said.
Economists and business leaders expect a surge in redundancies if the chancellor cancels pandemic subsidies before firms in the hardest hit sectors have found their feet.
Marshall said large companies will already be thinking about notifying staff about mass redundancies after the government refused to signal that support will remain place for the rest of the year.
The Night Time Industries Association said the announcement before the budget of £5bn to support nightclubs, theatres and restaurants remained vague.
“There is still concern over how much impact the budget will have for specific sectors and a built-in anxiety as we await the full communication from the chancellor on Wednesday,” said chief executive Michael Kill.
The budget will also outline a series of large spending commitments including a £5bn fund to provide grants to high street shops, pubs, restaurants and personal service firms such as hairdressers, which have been hit hardest by the pandemic.
The government has also allocated £22bn – £12bn of capital and £10bn of guarantees – to fund a national infrastructure bank, which, with private sector investors, will fund £40bn of infrastructure projects.
In a further development, Sunak will allocate £1.65bn to the coronavirus vaccine rollout to meet the target of offering a dose to every adult by 31 July and will divert £22m to fund a “world first” trial to test if different vaccines can be used together, or if a third dose is effective, the Treasury said.
Former prime minister Gordon Brown is urging the chancellor to extend job support schemes in his budget this week or risk “betraying a generation of unemployed”.
A report by the Alliance For Full Employment, set up by Brown, estimated there are at least 1,000 under-25s in every constituency in Britain now classed as long-term unemployed – without a job for at least six months.
“The pandemic hit a year ago but the government’s failure to move quickly is condemning a whole generation of young people to joblessness and rejection and many to mental depression,” he said.