MPs have warned chancellor Rishi Sunak ahead of the March Budget that “now is not the time for tax rises”, despite a report claiming a “moderate hike” in corporation tax could help the economy without damaging growth.
The statement comes from a report published by the Treasury Select Committee which acknowledged that public finances are on an “unsustainable long-term trajectory” but the decision to raise taxes could “undermine economic recovery” from Covid-19.
In the report the committee suggested that the government could raise revenue by “freezing income tax thresholds,” and that such a change would cause “minimum economic distortion”.
The group went on to note that a slight increase in corporation tax – which is reported to potentially be a part of Sunak’s plans this week – could help aid economic recovery if balanced with other tax relief measures for businesses such as enhanced loss relief and more “generous” capital allowances.
The report also said that the government should support businesses by introducing a “temporary three-year loss carry-back for trading losses in both incorporated and unincorporated businesses”.
Mel Stride MP, chair of the Treasury Committee, said: “Tax is often an area of significant disagreement between parties, so I am particularly pleased that the cross-party Treasury Committee has unanimously agreed this report for our Tax After Coronavirus inquiry.
“With our public finances on an unsustainable long-term trajectory, our clear message is that Budget 2021 is not the time for tax rises or fiscal consolidation, which could undermine the economic recovery. But we will probably need to see significant fiscal measures, including revenue raising, in the future.”
He added: “We’ve made a series of recommendations around the reform of taxes as well as a call for a clear tax strategy to underpin future decisions. We also identify some specific areas where revenue might be raised.”