Tax rises and public sector pay freeze fears in coronavirus plan

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Pensioners and public sector workers could be hit hard as the government tries to rebuild the economy after the coronavirus crisis.

A leaked treasury document seen by the Daily Telegraph estimates the budget deficit could be as high as £337 billion this year because of the pandemic and lockdown.

This is in contrast to the £55 billion deficit predicted in March's budget.

Measures put forward for plugging the enormous gap include raising taxes, a two-year public sector pay freeze and the end of the triple lock on pensions may be required to fund the debt.

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The pension triple lock means that pensions rise by at least 2.5%, the inflation rate or average earnings growth, whichever is biggest – but this could now be scrapped, reports Mirror Online.

The document, seen by the Telegraph, says: "To fill a gap this size (in the public finances) through tax revenue risers would be very challenging without breaking the tax lock.

"To raise fiscally significant amounts, we would either have to increase rates/thresholds in one of the broad-based taxes (IT, NICS, VAT, CT) or reform one of the biggest tax reliefs (e.g. pensions tax)."

It suggests a two-year public sector pay freeze could save £6.5billion by 2023-24 while "stopping the rising cost" of the pension triple lock would cut £8billion a year. A 1p rise in income tax could raise £5billion a year.

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The document predicts a worst case scenario of a £516 billion current budget deficit. The best case scenario, relying on the economy recovering sharply, would mean a £209 billion shortfall.

Asked about the leaked document, Transport Secretary Grant Shapps said it was "a speculative thing at this stage" and "I don’t think we recognise those figures."

He told Sky News: "In terms of payment, we’ll have to have future budgets and get to that.

“But right now we are still in the midst of this thing. And we’re clear we’re not going to go back to a world of austerity in order to do that.”

But Labour urged Boris Johnson and Rishi Sunak to reject the leaked proposals completely – as they come after almost 10 long, hard years of austerity.

Shadow chancellor Anneliese Dodds said: "A lack of resilience in our public services, caused by 10 years of underfunding, has made it harder to deal with the challenge of coronavirus.

"After all our public services and key workers have done to save lives during this pandemic, there must be no return to a society where we lack that resilience.

"Both the Chancellor and the Prime Minister must urgently make a statement rejecting these plans."

The Treasury declined to comment on the report, but it is understood that the document is one of many put together by different teams to discuss ideas about future policy.

A source said the document "does not reflect Government policy".

It comes after the Chancellor confirmed he will continue subsidising the wages of furloughed workers all the way to October 31.

The furlough scheme, currently supporting 7.5million jobs, will be extended but employers will be expected to pick up a share of the bill from August.

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That has prompted fears of mass redundancies – because even workplaces that are still completely shuttered will have to contribute.

And Chancellor Rishi Sunak last night suggested the UK is already in a recession.

Asked if we are looking at a recession he told the BBC: "We already know that many people have lost their jobs and it breaks my heart, we've seen what's happening with Universal Credit claims already.

"This is not something that we're going to wait to see – it's already happening.

"There are already businesses that are shutting they're already people who have lost their jobs.

"And as I said that's heartbreaking to me and that's why I'm working night and day to limit the amount of job losses."

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