The document advises Mr Sunak that it is now likely to become necessary to break at least one of the Conservatives’ key manifesto pledges not to increase taxes or scrap the triple lock on state pension rises.
It states: “To fill a gap this size [in the public finances] through tax revenue risers would be very challenging without breaking the tax lock. 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 (eg pensions tax).”
It adds that it would be “economically better to break the tax lock to achieve revenue of this scale than attempt to raise this level of revenue” and would also be “important to consider measures that support a growth-friendly composition of tax (consumption/property taxes rather than taxes on income/profits).
“We should also look at opportunities for new taxes that could meet some of the Government’s broader policy objectives, raising revenue to relieve long-term fiscal pressures (eg an NHS/social care surcharge or new carbon/green taxes). A one per cent increase in the basic rate in the basic rate of income tax would raise around £5 billion p.a.”
Mr Sunak is also advised that there are “further options to address the challenge through spending and welfare” reductions.
The document suggests a two-year freeze on public sector pay could generate savings of £6.5 billion by 2023-24, while “stopping the rising cost” of the pension triple lock would produce savings of £8 billion a year.