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The UK economy is in a double-dip recession as the Chancellor tries to spark a recovery with his latest spending review. Mr Sunak split opinion after reducing foreign aid from 0.7 percent of national income to 0.5 percent. The Chancellor also announced public sector pay will be frozen, although he promised to raise NHS staff pay by 2021. He defended his policy this week, saying: “That pay premium has certainly widened in the last six months, because what we’ve seen over the last six months is private sector wages have fallen by a percent and public sector wages have risen by around four percent.
“On top of that, people in the private sector are losing their jobs, their hours are being cut, they are being furloughed – none of that is happening in the public sector.
“So given the context, I couldn’t justify an across the board, universal pay increase for the public sector.”
However, the Chancellor is also facing pressure from within his own party as some Tory MPs fear Mr Sunak may increase taxes.
He commissioned a report, published earlier this month, which suggested a £14billion tax raid could help the economy bounce back.
The review published by the Office of Tax Simplification recommended changes to capital gains tax which could lead to increases in inheritance tax bills.
But backbenchers were furious in October because of reported plans to raise taxes on the self-employed.
One Tory MP told the Sunday Telegraph: “Self-employed workers have had a pretty rough deal and the idea that Sunak would now choose to make it even tougher for them seems perverse.
“Most people do not like the Treasury’s continual and institutional obsession with increasing tax on self-employed people.”
The MP also warned of a “huge rebellion” if the plans were put in place and added that “most people do not like the Treasury’s continual and institutional obsession with increasing tax on self-employed people”.
Former Chancellor Philip Hammond attempted to raise national insurance deductions on the self-employed in 2017, but faced significant backlash.
Mr Hammond tried to defend the policy, but admitted that aspects of it were not “in the spirit” of the Tory manifesto.
He added: “The Government continues to believe that addressing this unfairness is the right approach.
“However, since the budget, parliamentary colleagues and others have questioned whether the increase in class 4 contributions is compatible with the tax lock commitments made in our 2015 manifesto.”
Shadow Chancellor at the time, John McDonnell, called on Mr Hammond to apologise.
He said: “This is chaos. It is shocking and humiliating that the Chancellor has been forced to come here to reverse a key budget decision announced less than a week ago.
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“If the Chancellor had spent less time writing stale jokes for his speech and the prime minister less time guffawing like a feeding seal on the Treasury bench, we would not have been landed in this mess.
“Nobody should be too arrogant to use the word ‘sorry’ when they blunder so disastrously.”
Richard Murphy of Tax Research UK warned against tax increases in an interview with Express.co.uk earlier this year.
He said: “At first, Rishi Sunak completely underestimated what was going to happen, it was a complete disaster, because he hadn’t realised how disastrous coronavirus was going to be.
“But he was back a week later with the furlough scheme, it was smart, quick, some people lost out when they shouldn’t have done.
“Now Sunak’s obsession with debt is kicking in again.
“If he opts for austerity and tax hikes, then frankly we are heading for depression rather than a recession.”
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