The Confederation of British Industry (CBI) has urged ministers to "go for growth" amid fears of a devastating tax raid and 1.6m job losses as the furlough scheme ends in a nightmare autumn.
Business leaders and senior economists are begging Rishi Sunak to ditch mooted tax hikes in his autumn Budget, as he fights to repair the fiscal wreckage of the pandemic after UK growth crashed 20.4pc between April and June.
In a veiled message to the Chancellor over tax, Josh Hardie, deputy director-general of the business lobby group, said: “However the government decides to handle debt, one thing is certain - a growing economy backed by investment will make it easier.
"With so much uncertainty ahead with the pandemic and Brexit, now is the time to go for growth.”
It is feared that any increase in taxes will be disastrously counter-productive as Britain struggles out of one of its deepest ever recessions.
Rumoured plans to hike corporation tax from 19pc to 24pc and target wealth creators with higher capital gains taxes could ultimately drive down the Exchequer's takings by triggering mass avoidance and tipping the economy back into disaster.
Mike Cherry, national chairman of the Federation of Small Business, warned that potential tax rises should be the last thing on the minds of policy makers.
He said: “It’s an approach that would send completely the wrong message to those who are out of work and thinking about starting up their own venture."
The warning came as economists forecast that severe job cuts already felt across corporate Britain could swell into a tsunami as the taxpayer-funded furlough scheme is wound down next month.
From Tuesday, Jobseeker Retention Scheme (JRS) rules will be tightened further as the Treasury only pays 70pc of employees' normal wages up to a cap of £2,187.50, with employers required to top this up to 80pc. The scheme has protected 9.6m jobs so far.
Experts at KPMG now predict a 10.3pc growth slump for the UK this year - even worse than they initially feared - with a second lockdown potentially triggering an even deeper 12.6pc decline.
The end of the furlough scheme will send unemployment shooting to a peak above 9pc in the final quarter of 2020, chief economist Yael Selfin warned - more than twice as high as the 3.9pc current level and equivalent to some 1.6m workers losing their jobs.
This predicted peak is higher than the 7.5pc forecasted by the Bank of England and the recovery will take longer, Ms Selfin added. It is feared the economy is now going through deep and long-lasting structural change as millions of workers permanently abandon the office to do their jobs remotely - wrecking town and city centres and the work which they provide.
Ms Selfin said: “We expect unemployment to fall very gradually this time as well, because of the intertwining of structural changes and the economic shock created by the pandemic.”
KPMG's forecasts of an 8.4pc recovery in growth during 2021 are based on a Brexit deal being struck with the European Union by the end of the year and a Covid-19 vaccine being approved in January. Failure on both counts could mean the UK bounces back at less than half this pace, KPMG added.
Business leaders urged Mr Sunak to turbocharge hiring through further tax cuts to help the economy stave off the looming unemployment crisis.
Mr Cherry added: “We have to bring down the upfront costs of hiring. That starts with reducing employer National Insurance Contributions, which serves as a jobs tax, by cutting rates or increasing the targeted Employment Allowance.
"As the Job Retention Scheme is brought to an end, national insurance contributions should be brought down to protect jobs.”
One senior industry source said some kind of furlough extension could still be needed. The insider said: “If the JRS is done are you really saying there is nothing for firms until next year? If so, that is a very, very bold call.
"The real question is has the Chancellor boxed himself in too much by saying he is not going to extend JRS, and if so, can we rebrand it in a way that gives him another way out without another government U-turn?”
Fiscal experts have also questioned how much revenue the mooted 5pc hike in corporation tax would generate.
Treasury estimates suggest a £17bn increase in the tax take but Stuart Adam, a senior researcher at the Institute for Fiscal Studies, said: “It will raise you an awful lot less than a simple mechanical calculation would lead you to believe. The bigger the increase, the less proportionately it will bring in. A five percentage point increase will not get you five times as much as 1pp increase will get you.”