Mr Sunak admitted he had taken decisions no Conservative Chancellor would want to make in crafting his plan to recover the economy, including hiking corporation tax to 25 per cent in 2023 and freezing the personal income tax allowance.
But the measures imposed will support an extension of the furlough scheme, and a £20 uplift to Universal Credit, as well as a raft of measures as part of a £65bn lifeline for the economy.
Delivering his Budget today, Mr Sunak said the recovery would be “swifter and more sustained” than previously thought as a result of the vaccine roll-out.
The Office for Budget Responsibility expects the economy to return to its pre-Covid-19 levels by the middle of next year, six months earlier than it previously thought.
Although Mr Sunak announced help for industries such as tourism and hospitality, with VAT in the sector remaining at five per cent, and a continued business rates holiday for the retail, hospitality and leisure sectors until the end of June, he made clear that there were consequences for the Government’s support.
He outlined how the total package of measures – including those already announced – to support the economy amounted to £407bn, and he said this year borrowing was £355bn, 17 per cent of national income – the highest level since the Second World War.
Next year it is forecast to be £234bn, 10.3 per cent of GDP, which he admitted was “an amount so large it has only one rival in recent history – this year”.
Mr Sunak said it would take “a long time” to rebuild, as he added: “Simply put, we have to get borrowing and debt back under control.”
However, Labour leader Sir Keir Starmer said the country had been given a Budget which “papered over the cracks, rather than rebuilding the foundations”.
And he warned it demonstrated that “the Government doesn’t understand what went wrong in the last decade or what’s needed in the next”.
He said: “The Chancellor’s one nominally long-term policy was his references to levelling up.”
But he added: “For the Chancellor levelling up seems to mean moving some parts of the Treasury to Darlington, creating a few freeports and re-announcing funding. That isn’t levelling up - it’s giving up.”
During a press conference in Downing Street last night, Mr Sunak was questioned over whether the hikes to corporation tax marked a move away from traditional Conservative ideals.
He insisted rates were still the lowest out of the G7 countries, but he added: “Obviously the pandemic has dealt us pretty bad damage to the public finances in the economy.
“I think I, and the Government, have a responsibility to put those back in a strong position over time, but do that in a way that is supportive of our economic recovery in the short term, but also do so in a way that is fair.”
And when it was put to him that it was a “gamble” to raise the tax, he said: “We’re on the side of business and we know they can help play their part in the recovery.
“But I also think it’s reasonable, given the amount of support that we’ve given them, given the crisis we face with our public finances, that it’s reasonable to ask those largest, most successful companies in two years’ time to contribute something back to help us rebuild. I think that’s a reasonable and fair approach that will support us in the long term.”
The changes make Mr Sunak the Chancellor with the highest tax burden since Roy Jenkins in the 1960s, but he said other Chancellors did not have “pandemics to deal with”.
He said: “We haven’t had a pandemic like this in over 100 years, so I think remember that’s why we’re having this conversation, that’s the problem that we’re grappling with.
“Unsurprisingly, when you’ve had a shock like that, and then when you’ve had a response in the likes of which we have done, I don’t think any of those other Chancellors probably ever had to do as much fiscal support for the country as I have had to.”