Mr Sunak extended furlough until September in Wednesday’s Budget and set out measures to protect business as the UK emerges from lockdown.

But he also announced major changes to tax – including a freeze on personal allowances.

That means a million more people will start paying income tax.

But Mr Sunak insisted no-one’s take-home pay would be lowered and the threshold freeze would hit those on higher incomes more.

The Institute for Fiscal Studies (IFS) said about 1.3 million people would be brought into the income tax system, with about 10% of adults brought into the higher 40p rate.

Mr Sunak told the BBC a freeze to personal tax thresholds was a “progressive” move which would ensure the people that earned the most paid the most adding “it is a fair way to do what we need to do”.

He said: “People’s current take home pay won’t be affected by this policy but it does mean the incremental benefits they would have experienced had the thresholds continued to rise with inflation won’t be there.”

During his Budget, Mr Sunak announced that a weekly £20 increase in universal credit – introduced last year to help those hit financially by the coronavirus pandemic – would end in September.

The Joseph Rowntree Foundation and the Resolution Foundation said the move would bring the incomes of benefit recipients down to levels not seen since the early 1990s.

Labour’s shadow chancellor Anneliese Dodds warned that “low-income families could be seeing a very difficult time in the future”.

Mr Sunak insisted the government was taking a “generous approach” and also defended tax rises – arguing that the burden would fall on those with higher income.

The Office for Budget Responsibility (OBR), the government’s fiscal watchdog, said the measures, along with cuts of around £4bn from departmental spending plans, would raise a total of £31.8bn in 2025-26.

The watchdog said the tax burden would rise from 34% of gross domestic product – a measure of the size of the economy – to 35% in 2025-26, “its highest level since [Labour’s] Roy Jenkins was chancellor in the late 1960s”.

Mr Sunak told MPs the total package of measures to support the economy – including those previously announced – amounted to £407bn, but warned the unprecedented spending could not continue.

Speaking to the BBC, Mr Sunak said it was “important we get our borrowing under control”.

The IFS think tank said the UK’s tax burden was set to rise to its “highest sustained level” ever.

But Mr Sunak insisted the UK would still have the lowest effective corporation tax rate in the G7 group of industrialised economies.

Source: bbc.com