How can Chancellor Rishi Sunak save the economy from coronavirus crisis? Experts debate raising taxes to save economy

THE coronavirus will no doubt have huge implications on Britain’s economy and as Chancellor, Rishi Sunak must ensure he is prepared.

Here, two experts discuss his best course of action. Is raising taxes the wrong approach or the Government’s only option?

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‘Tax rises are precisely the wrong approach’

Norman Lamont, Former Chancellor

One surprise of this crisis has been how easily we have accepted the lockdown.

Some people seem to positively enjoy it. To some it brings back the spirit of the Blitz, a feeling of solidarity.

To others, fewer cars and planes are an indication of the more green lifestyle we ought to be living.

It’s good that people have ­managed to cope with these restrictions.

But when polls indicate that many would be prepared to put up with a lengthy lockdown, I begin to worry.

An economic interruption of this kind will have a devastating effect on jobs and living standards and can only be borne for a l­imited period.

It is vital that the PM relaxes the lockdown as soon as the scientists feel it is appropriate — otherwise there will be no economy left.

Rishi Sunak, the Chancellor, has been bold, promising to do “whatever it takes” to steer the economy through these perilous waters.

‘WHATEVER IT TAKES’

His furlough scheme, paying up to £2,500 a month of people’s wages, has helped prevent firms getting rid of workers they can no longer afford to pay.

It’s also eye-wateringly expensive — costing well over an estimated £40billion — so cannot continue indefinitely. But if the Government lifts some restrictions soon and the economy starts to recover, what should the Chancellor do in his November Budget?

He will face a massively reduced economy, groaning under skyscraping debt, higher unemployment and only a gradual recovery.

Horrific as the figures will be, it would be a mistake to move quickly to reduce debt before recovery is firmly established. He should let borrowing take the strain in the short term. Any measures to rein in the deficit should be for later.

In order to boost jobs, he might cut National Insurance or make a temporary cut in VAT to bring forward spending.

Labour leader Keir Starmer gave a menacing hint of his party’s approach when he said there would have to be “a day of reckoning” and hinted at tax increases on the blameless better off. That would be precisely the wrong approach.

As the economy gets back to maybe 90 per cent of where it was before, the Chancellor should do all he can to ­support business.

He has recently given generous help to hi-tech start-ups. But he must continue to support existing businesses.

It should never be ­forgotten that firms which fail in this crisis have not failed through any fault of their own.

This downturn is not caused by ­market forces.

No, this recession and its bankruptcies have been caused by ­the measures rightly introduced by the ­Government to contain the virus.

Whitehall and No 10 should not feel embarrassed about continuing schemes to support businesses and indeed have a duty to do so.

The Chancellor sets the framework but ultimately growth does not come from governments but from individuals and firms.

The way to growth and recovery is to give the freedom and the incentives and the rest will follow.

‘We can’t go on borrowing for too long’

David Paton, Professor of Industrial Economics at Nottingham University

Raising taxes in the current climate is not something the Government is likely to want to do.

But the scale of the economic crisis now gripping the UK means they may end up feeling they have little option.

So far the Chancellor has done what he had to do to protect businesses and workers from enforced shutdowns. The cost will have to come from somewhere.

It is estimated the furloughing scheme alone will cost at least £40billion. At the same time, tax receipts have nosedived as earnings have decreased and fewer people are spending in the shops.

As a result, the Office for Budget Responsibility estimates that public- sector borrowing will increase by an eye-watering £218billion above the earlier forecast.

The black hole in the country’s finances left by Covid-19 means that at some point, the Chancellor is going to have to face the uncomfortable issue of whether taxes will go up.

‘PAY THEIR FAIR SHARE’

Any rises must be set against the need to ensure nothing chokes the ­economic recovery, which will be vital.

We must also guard against hitting the most hard-up in society. And ­crucially, we need to ensure we don’t make it unprofitable for dynamic small companies to operate.

One option for the Chancellor is to target the big multi-nationals and billionaires who use tax havens to avoid paying their fair share.

Yet we will also need to have big business on our side as we try to recover, so it is a delicate balancing act.

Our priority right now still has to be protecting the vulnerable and health workers from another Covid-19 outbreak.

But it is time too for the Government to think seriously about how to restart the economy as quickly as possible.

Two days ago came news that Jaguar and Aston Martin will restart production in May. The Chancellor needs to help other companies follow suit.

The more successful he is, the likelier he will be able to limit the number of extra taxes he has to raise in the months ahead.