Treasury considering freeze on pensions and public sector pay to cover coronavirus bill

Prime Minister Boris Johnson (centre) arrives with Cabinet secretary, Mark Sedwill (left) and Chance

Prime Minister Boris Johnson (centre) arrives with Cabinet secretary, Mark Sedwill (left) and Chancellor Rishi Sunak (far right) in the Cabinet Room inside 10 Downing Street. Photograph: Stefan Rousseau/PA Wire. - Credit: PA

Newspaper reports have claimed the chancellor is considering income tax hikes, a public sector pay freeze and the end of the triple lock on pensions to fund the debt sparked by the coronavirus.

The Daily Telegraph reported that a Treasury document estimated the UK's deficit could reach £337 billion this year because of the pandemic, compared to the forecast £55 billion in March's Budget.

It said the assessment, drawn up for the chancellor and dated May 5, warned that to fill such a gap in the public finances through tax revenue rises would be 'very challenging without breaking the tax lock'.

Measures to fund the bill include tax hikes, a pulbic sector pay freeze for two years and freezes on pension rises.

The Treasury document is said to state: 'To fill a gap this size (in the public finances) through tax revenue risers would be very challenging without breaking the tax lock.

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'To raise fiscally significant amounts, we would either have to increase rates/thresholds in one of the broad-based taxes (IT, NICS, VAT, CT) or reform one of the biggest tax reliefs (e.g. pensions tax).'

In the worst-case scenario, the assessment reportedly warns that the deficit could increase to £516 billion in the current financial year.

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Transport secretary Grant Shapps said he did not recognise the figures quoted by the Telegraph.

'It is too soon to get into those figures. I don't recognise those figures. Time will tell, but the careful management we are going through at the moment is the best way to ensure the economy can recover,' he told the BBC Radio 4 Today programme.

Labour also urged Boris Johnson and Rishi Sunak to reject public sector spending cuts as a way of paying off the cost of the pandemic.

Shadow chancellor Anneliese Dodds said: 'A lack of resilience in our public services, caused by 10 years of underfunding, has made it harder to deal with the challenge of coronavirus.

'After all our public services and key workers have done to save lives during this pandemic, there must be no return to a society where we lack that resilience.

'Both the Chancellor and the Prime Minister must urgently make a statement rejecting these plans.'

Chairman of the Police Federation of England and Wales John Apter called any such move 'morally bankrupt' and urged the government to rethink any plans for 'financially punishing our public sector workers'.

In a series of tweets, Apter said: 'If there is any consideration in financially punishing our public sector workers then I urge a rethink.

'The chancellor, @RishiSunak and thousands of others have clapped for our key workers every Thursday.

'To even consider freezing the pay of our essential public sector workers to help the financial recovery would be morally bankrupt and would be a deep and damaging betrayal.'

The Treasury declined to comment on the report, but it is understood that the document is one of many put together by different teams to discuss ideas about future policy.

A source said the document 'does not reflect government policy'.

The Conservatives pledged in their manifesto at the general election last year that the party would not raise the rate of income tax, VAT or National Insurance, and would keep the pensions triple lock.

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