Funds to pay back the vast Covid-19 debt have to come from somewhere

Money to pay back the vast costs of Covid-19 has to come from somewhere. Unfortunately for Middle Britain, much of the burden will fall on its shoulders.

Indeed, Rishi Sunak‘s coronavirus face mask could double up as a highwayman’s disguise, so adept has he been at forcing the middle classes to stand and deliver.

He has deployed stealth techniques but make no mistake: The Budget sets out a plan that will hit the thrifty and the aspirational. 

The Chancellor is seeking to claw back the huge sums spent on battling the pandemic from people’s pay packets, pension pots and the legacies they want to leave their children.

Rishi Sunak’s coronavirus face mask could double up as a highwayman’s disguise, so adept has he been at forcing the middle classes to stand and deliver

The argument is that there is no alternative. In the view of No 11, the professional middle classes are best placed to pick up the tab because, on the whole, they have continued to prosper. 

Many are actually better off as they have maintained their incomes while their spending has plunged in lockdown – to the extent that they will have accumulated £180billion of excess savings by summer.

His plans to soak the middle classes are coupled with a jolting hike in corporation tax from 19 per cent to 25 per cent in two years’ time – only just under the 26 per cent proposed by Jeremy Corbyn, the former Labour leader. 

The difference is that Mr Corbyn was attacking business with relish, whereas Mr Sunak is responding to unprecedented circumstances.

The corporation tax rise will squeeze £47billion out of larger profitable companies – which will also indirectly hit the middle classes by deterring job creation and investment.

Politically speaking, by freezing a raft of thresholds on inheritance, capital gains, pensions and salaries, Mr Sunak has been astute. 

Normally, these allowances are increased in line with inflation each year. Instead, they will be kept at current levels until the fiscal year 2025/6. 

The higher rate tax threshold, which kicks in at £50,000 – hardly the riches of Croesus – has also been consigned into the deep freeze. It will go up to £50,270 in April and will stay at that level for five years.

The Chancellor is seeking to claw back the huge sums spent on battling the pandemic from people's pay packets, pension pots and the legacies they want to leave their children

The Chancellor is seeking to claw back the huge sums spent on battling the pandemic from people’s pay packets, pension pots and the legacies they want to leave their children

Economists describe this as ‘fiscal drag’ which is a good expression for the deadening effect it has on the spirits. Freezing the higher rate threshold for half a decade is unbelievably anti-aspirational.

Why strive to advance at work if it means handing over a huge chunk of your additional earnings to the taxman? It is tantamount to a punishment for promotion. The low paid will also be hit because the personal allowance, which stands at £12,500, is being frozen too.

Next Page