Coronavirus: Billions required to battle pandemic could be equivalent of 6p on income tax, economists warn

Cost would ‘never’ fall on income tax alone

The potential long-term costs of the battle against coronavirus could be the equivalent of an extra 6 or 7p on income tax, a leading economic think tank has said.

The Institute for Fiscal Studies (IFS) also warned chancellor Rishi Sunak to concentrate on how he will steer the economy over the next year, and forget plans to set out a multi-year spending review.

Specifically, the think tank urged Mr Sunak to focus on how much of the £70 billion spent on the Covid-19 pandemic this year would have to be repeated in future years.

Last week Mr Sunak scrapped plans for a budget this autumn, to set out further plans to help companies retain workers this winter.

But he has come under increasing pressure to go further, amid warnings the aid package announced will do little to stem a tide of redundancies set to hit the economy in coming weeks.  

An IFS report today warns that if some of the spending to tackle the virus has to become permanent, that would lead to either tax rises or spending cuts.

IFS director Paul Johnson said the bill would “never” land on income tax alone.

He said: "It is entirely inappropriate for the Chancellor to consider raising taxes this year or next, or possibly even the year after. The real issue at the moment is keeping the economy going.

"The longer term answer is clearly, if we have a bigger state we will need more tax and, if we think the state is going to be 2% to 3% of national income bigger than we're expecting, then that's probably the magnitude you would have to raise taxes by, and that's a lot, that’s north of £50bn."

Pressed that that would be in the order of magnitude of about 6 or 7p on all income tax rates, he added: ”There’s no way that that would happen, but that gives you the sort of order of magnitude.”