Iain Macwhirter: Sunak will kick the can down the road, and no one is going to stop him

Increasing business taxes was the centrepiece of the former Labour leader Jeremy Corbyn's tax policies. His shadow chancellor John McDonnell's income tax proposals were much less radical than many thought, since he only wanted to increase taxes on people earning over £80,000 a year. But Labour promised to increase corporation tax from 19 per cent to 26% – the highest in the G7 – bringing in £30 billion a year.

It is no secret that Chancellor Rishi Sunak is proposing to do something similar today. He is hamstrung by Boris Johnson's promise not to increase the rate of income tax, VAT or National Insurance contributions. The speculation is that Mr Sunak may raise it to 23%. Business organisations are dismayed that a Tory Chancellor has adopted “anti-enterprise” policies.

So, for Labour to be equivocating on this, and backing the bosses, was remarkable. After a furious row in the Labour Party, Ms Dodds said she didn't oppose increases in corporation tax “later on”. But the damage had been done. Labour is becoming almost as divided over its leadership in the UK as the SNP is in Scotland. Sir Keir Starmer's determination to draw a line under the Corbyn era – not least by expelling him from the party – has created a gulf between the parliamentary party and its more youthful activist wing.

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But while Labour was meowing about not increasing taxes, influential Tories were barking that they should be increasing them fast. The former Tory leader William Hague took to the airwaves to warn his Government that it was harbouring “dangerous illusions” that spending no longer mattered in the era of low interest rates. He advised the Chancellor to buckle up and increase personal and business taxes now to avoid the pain later. Otherwise the Government would have to introduce public service cuts.

Other Tory grandees, including former Chancellor Kenneth Clarke, have echoed the call for tax increases. But backbench Tory MPs are already worried about the cost of Mr Johnson's big spending promises. All they needed was Lord Hague now borrowing Labour's traditional clothes on personal and business taxation.

What all this fiscal cross-dressing indicates is that the pandemic has reset economic thinking across the political parties. There is a very good reason for that. Frankly, we're living in a fool's paradise. Thanks to the remarkably effective roll-out of vaccinations, plus the imminence of spring, there's a mood of optimism abroad, of green shoots. Some are even forecasting an economic boom as all those furloughed workers spend the billions they've saved by staying at home.

This optimism is likely to be short-lived. The reality is that large parts of the economy, especially in leisure and services, have been destroyed. The high street will never come back, as internet behemoths like Amazon have taken retail online, robbing the Exchequer of much revenue in the process.

GDP has dropped by 10%, the biggest collapse in 300 years. There is recession and downturn throughout Europe and the world, depressing trade. Bond markets are signalling an increase in inflation. And if that weren't enough, Brexit is making life even more difficult for UK businesses by imposing border restrictions.

Shadow chancellor Anneliese Dodds

Unemployment has not yet risen to the eight per cent that was forecast by the Bank of England, but half a million people have already lost their jobs. Far more would be on the dole were it not for the Chancellor's generous furlough scheme. A quarter of private sector workers are now paid by the state. Indeed, if you include public sector workers, pensioners and those on benefits, more than half the adult population is now on the Government payroll.

Now, some on the Left argue that this is a good thing. Bring it on. Let's just abolish capitalism and have everyone work for the state. Advocates of what is called Modern Monetary Theory, MMR, like the Labour-supporting accountant, Professor Richard Murphy, believe that governments can keep spending almost indefinitely. At any rate, they can go way beyond traditional Keynesian deficit financing.

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Neither Labour nor the Tories believe in MMR, but right now you could be forgiven for thinking otherwise. Mr Sunak has racked up a £350bn budget deficit – a peacetime record. Britain's debt pile is now £2.1 trillion – almost as big as the economy itself. This has been disguised by low interest rates, though they can't remain low forever.

But here's the twist: the Chancellor cannot reduce debt by increasing taxes significantly right now because that would cause the economy to tank even further. Indeed, there is arguably an urgent need for a spending boost to keep people in work and maintain tax revenues.

If he switched off the job support scheme, cut benefits and scrapped the tax holidays he could easily turn a pandemic into a depression. So don't expect any big cuts in spending or big increases in personal taxation. There will be the usual coy tweaks which will emerge later, but right now the Chancellor's first duty is to keep the economy in intensive care.

Mr Sunak is a competent minister, with a convincing manner and a good grasp of the numbers. He is engaged in the biggest exercise in kicking the fiscal can down the road in economic history. However, no one, in either Labour or the Conservative Party, is going to tell him to stop.