MPs will examine an overhaul of the tax system as the Covid-19 blow to the public finances raises the prospect of hikes.
The Treasury Committee, the most powerful group of backbench MPs, has began an inquiry into tax after the pandemic amid warnings the Government will have to rein in borrowing.
Mel Stride, chair of the committee, said “tax will play a major role in the years ahead in restoring the public finances” after the economy was put “under extraordinary stress” from Covid-19.
He warned the worst of the economic fallout was “perhaps yet to come” as deficits around the world soar to levels never seen in peacetime.
The committee will examine whether tax breaks can help the economy recover, long-term pressures on the system such as the ageing population, and the level of taxation the economy can withstand. Evidence can be submitted until August 28.
Reining in public debt with tax hikes could force the Conservatives to abandon a manifesto pledge not to raise income tax, national insurance or VAT.
The budget watchdog and economists have warned that either significant tax hikes or spending cuts will be needed to stop public debt becoming unsustainable.
Stabilising Britain's debt would need tax rises or spending cuts of £60bn every decade, the Office for Budget Responsibility warned earlier this week.
However, the prime minister has ruled out a return to austerity despite Chancellor Rishi Sunak warning at this month’s mini-Budget he will need to “put our public finances back on a sustainable footing”. Mr Sunak sparked speculation of tax hikes on Tuesday after launching a review into capital gains tax.
“Whatever policies are adopted to meet the challenges ahead, being able to predict what the UK tax system will deliver under any given set of measures is vital for the Chancellor,” said Glyn Fullelove, president of the Chartered Institute of Taxation.