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MPs tell UK chancellor ahead of budget: Don't raise taxes yet

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·Senior City Correspondent, Yahoo Finance UK
·2-min read
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Britain's Chancellor of the Exchequer, Rishi Sunak leaves the New Broadcasting House following an interview on BBC TV's The Andrew Marr Show, amid the spread of the coronavirus disease (COVID-19), in London, Britain, February 28, 2021. REUTERS/Toby Melville
Britain's Chancellor of the Exchequer, Rishi Sunak leaves the New Broadcasting House following an interview on BBC TV's The Andrew Marr Show, amid the spread of the coronavirus disease (COVID-19), in London, Britain, February 28, 2021. Photo: REUTERS/Toby Melville

An influential group of MPs have told the UK's chancellor not to announce tax rises in Wednesday's budget.

The Treasury Select Committee said in a report published on Monday that now was not the time to increase taxes given the perilous state of the economy.

“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," committee chair Mel Stride MP said in a statement. "But we will probably need to see significant fiscal measures, including revenue raising, in the future."

READ MORE: Conservative triple lock manifesto pledge faces 'significant pressure'

The warning comes just days before chancellor Rishi Sunak is set to deliver his annual budget. The chancellor is widely tipped to announce tax rises, including increases to corporation tax and capital gains tax. Reports in the weekend press suggest the self-employed could also face tax hikes and online businesses could be hit with a windfall tax.

Sunak refused to rule out tax increases during interviews with the BBC and Sky on Sunday.

"Well the right thing to do right now is to support the economy, but I also want to level with people about the challenges we face," Sunak told the BBC's The Andrew Marr Show. "Coronavirus has had an enormous shock both to our economy and our public finances and I think it’s right to be honest with people about that challenge and be clear about what our plan to address that is."

READ MORE: Targeted tax rises won't derail COVID recovery, UK chancellor told

The COVID-19 pandemic has forced the government to borrow huge sums to protect public health and the economy. The UK's budget deficit is on track to reach £400bn this year and national debt has soared above £2trn.

Interest rates are at record lows around the world, making borrowing affordable. But small changes in interest rates could hugely increase debt service costs given the size of the debt pile. A spike in international bond prices last week highlighted this risk.

"We’ve borrowed a lot so of course we’re that much more sensitive to changes in those rates," Sunak told Marr.

The Treasury Select Committee report said a moderate increase to corporation tax could raise revenue without hitting growth but warned the chancellor away from increasing other taxes. The committee said the chancellor should wait until an economic recovery is underway before seeking to raise significant revenues.

Watch: Sunak told 'now is not the time' for significant tax increase

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