Tory tax civil war as William Hague and Philip Hammond BOTH back hikes to heal public finances

The Tory civil war over tax rages today after Boris Johnson hinted fuel duty will be frozen in tomorrow’s Budget – but Lord Hague warned that taxes will have to rise to heal the public finances.

The PM signalled that Rishi Sunak will avoid raising the levy on petrol and diesel as he insisted the economic recovery will be ‘powered by White Van Man’.

But while he is also expected to keep pouring money into the coronavirus response by extending the furlough scheme and other bailouts, the Chancellor is also set to lay out a grim timetable of hikes to bring in more revenue and stop debt spiralling out of control. 

Corporation tax is almost certain to go up, while income tax thresholds could be frozen to drag more people into the higher bands. 

The plan has already sparked a massive backlash from Tories, while Labour is arguing that now is not the time to be increasing the burden on business.  

But former Cabinet minister Lord Hague has joined other senior Conservative figures including ex-Chancellor Philip Hammond in warning that taxes will need to go up.

Mr Hammond, who was chancellor to Mr Johnson’s predecessor Theresa May, warned that public spending cuts would also be needed to get on an economic even keel.

‘I think we have got to get a balance right between restraining public spending and increasing taxes and we’re going to have to do both,’ he told Times Radio.

‘Anybody who says that the challenge can be met only by increases in taxation, or only by cuts in public spending is not being straight with people.’

Writing in the Daily Telegraph, the peer said: ‘It pains me to say, after spending much of my life arguing for lower taxes, that we have reached the point where at least some business and personal taxes have to go up.’

The former foreign secretary, Mr Sunak’s predecessor as MP for Richmond in Yorkshire, said those who opposed some form of tax rises in the current climate were buying into ‘dangerous illusions’.

But with rumours swirling about possible tax increases, the Prime Minister was keen to dismiss the idea of new green levies penalising consumers and motorists.

Mr Johnson told The Sun he planned to use the UK’s ambition of being carbon neutral by 2050 to ‘generate high quality, high skill, high wage jobs’ and not to slap higher taxes on carbon-intensive foods such as meat.

He also backed up suggestions that the Budget will see fuel duty frozen for the tenth year running. 

Yesterday Mr Johnson insisted the UK economy will prove ‘pessimists’ wrong with a surging recovery, amid claims the black hole in the government’s finances could be smaller than the £40billion previously feared.

The PM dropped a heavy hint that the forecasts accompanying the Budget will give Mr Sunak a boost as the vaccine rollout continues at breakneck speed.  

He said growth ‘could be much stronger than many of the pessimists have been saying over the last six months or so’.

In a smattering of pre-Budget teasers, Treasury officials have said Mr Sunak will use his fiscal package on Wednesday to give a ‘significant chunk’ of a £300 million sports recovery package to cricket as fans prepare to return to stadiums this summer.

In preparation for Wednesday’s Budget, the Treasury on Monday evening revealed a series of funding packages targeting support at the beleaguered culture, sport and pub trades which have seen profits and activity knocked since social distancing was introduced at the start of the Covid outbreak last year.

Mr Sunak is expected to pump an extra £300million into the £1.57billion Culture Recovery Fund, as part of the measures.

National museums and cultural bodies will also receive £90 million to help keep them afloat until they can open their doors on May 17 at the earliest and £18.8 million will be provided for community cultural projects.

An additional £77 million will be given to the devolved administrations in Scotland, Wales and Northern Ireland to provide their culture groups with similar backing.

The Chancellor said: ‘Throughout the crisis we have done everything we can to support our world-renowned arts and cultural industries, and it’s only right that we continue to build on our historic package of support for the sector.

‘This industry is a significant driver of economic activity, employing more than 700,000 people in jobs across the UK, and I am committed to ensuring the arts are equipped to captivate audiences in the months and years to come.’

Tate director Maria Balshaw called the announcement a ‘vote of confidence’ in the country’s art organisations, while Creative Industries Federation chief Caroline Norbury said the cash would be a ‘vital part’ of enabling the sector to ‘bounce back’.

Mr Sunak will also use the Budget to deliver a £150 million Community Ownership Fund to allow pub goers to bid for up to £250,000 to save their favourite local.

The fund, due to open for applications in the summer, is designed to help community groups to take over struggling pubs or other community assets in their area in order to keep them going.

In signs of a shifting Labour position on tax rises, shadow chancellor Anneliese Dodds suggested the Opposition party could support an increase to corporation tax in the ‘long-term’.

The Chancellor is said to be considering raising corporation tax to as much as 25 per cent from 19 per cent, in a move that has caused splits within Labour.

Ms Dodds used a speech on Monday to argue that now is ‘not the time’ for tax rises but signalled she could support an increase in corporation tax in the future.

In an article for the Guardian, she went even further, saying: ‘There is a clear long-term case for rises in the rate of corporation tax – as well as action against loopholes – where the Conservatives have made us an international outlier for a decade.

‘If there were a sensible plan to raise the rate across this parliament, of course Labour would look at that carefully – but now is not the time for immediate tax rises.’