Rishi Sunak told ministers the impact of coronavirus on the national finances cannot be ignored, but the UK can be “optimistic about our recovery”, as he updated the Cabinet ahead of the Budget.

The Chancellor said the pandemic had hit the economy hard and “we must be honest with ourselves and the country about what that has meant”, with borrowing pushed to wartime levels, according to a Downing Street summary of the meeting.

In a sign that he could set out tax rises to begin addressing the public spending black hole, Mr Sunak said “we know that we cannot ignore this problem and it wouldn’t be right or responsible to do so”.

But Mr Sunak will also use the Budget to outline support “to get people through to the other side of the crisis” – with the furlough scheme and other financial lifelines set to be extended – and set a course for an economic bounceback.

A Downing Street spokesman said: “The Chancellor said that, while we face challenging times, we will rise to that challenge and we can be optimistic about the recovery.

“He said the Budget will begin the work of building our future economy.”

Number 10 said Prime Minister Boris Johnson told ministers the Budget would “begin to set out how the country will make the most of our post-Brexit future and as a science superpower”.

Mr Sunak has promised to use the Government’s full “fiscal firepower” to support jobs and livelihoods.

Budget 2021
Rishi Sunak and the Treasury team inside 11 Downing Street (Toby Melville/PA)

He will extend the furlough scheme until the end of September and pledge to do “whatever it takes” to help people and businesses through the coronavirus crisis when he addresses MPs at 12.30pm.

The Coronavirus Job Retention Scheme has protected more than 11 million jobs since its inception, but under plans to taper the Government’s contribution, employers will be expected to pay 10% towards the hours their staff do not work in July.

Their contribution will increase to 20% in August and September, as the economy reopens, but employees will continue to receive 80% of their salary for hours not worked until the scheme ends. It had been due to close at the end of April.

The extension will have a price tag of around £10 billion, according to the Resolution Foundation think tank.

Further support for self-employed workers will also be announced, with more than 600,000 people – many of whom became self-employed in 2019/20 – now eligible for cash grants.

A fourth grant from the Self-Employment Income Support Scheme (SEISS) will be available to claim from April, worth 80% of three months’ average trading profits up to £7,500, while the Chancellor will set out details of a fifth grant.

The Treasury said that hundreds of thousands more people will be eligible for the grants this time, as tax return data for 2019/20 is now available. Mr Sunak faced criticism that newly self-employed people were unable to benefit from the scheme previously.

The all-party parliamentary group on gaps in support questioned the effectiveness of the Chancellor’s plan, claiming it might only help 150,000 extra people.

The extension to the furlough scheme was welcomed by business organisations, with the CBI’s chief economist Rain Newton-Smith saying it will keep “millions more in work and give businesses the chance to catch their breath as we carefully exit lockdown”.

However, Bridget Phillipson, shadow chief secretary to the Treasury, said the changes to support schemes “could have been made months ago” – accusing Mr Sunak of focusing on “getting his moment in the sun rather than protecting jobs and livelihoods”.

Other measures in the Budget will include:

– An increase in the contactless payment limit to £100.

– £5 billion for a new grant scheme to help businesses.

– £1.65 billion to boost the UK’s vaccine rollout.

– £520 million to support small UK businesses with training and software.

– Nearly £410 million to support the badly-hit culture sector.

– £300 million to help cricket, tennis and horse racing in a summer sports recovery package.

– £150 million to help local communities save struggling pubs, sports clubs, theatres and Post Offices.

– £2.8 million to help fund a joint UK and Ireland bid to host the 2030 football World Cup.

The Chancellor is reportedly planning to extend the stamp duty holiday until the end of June, while The Times also said the business rates holiday for the retail, hospitality and leisure sectors will also be continued along with the VAT cut for hospitality and tourism.

A freeze on fuel duty looks set to continue, but Mr Sunak is said to be considering raising corporation tax to as much as 25% from 19%.

Reports have suggested the level at which people start paying the basic rate of income tax – £12,500 – and the £50,000 threshold at which they begin paying the higher 40p rate will be frozen for at least three years.

An extension to the £20-per-week uplift to Universal Credit for six months has also been mooted, as have plans to freeze the lifetime allowance – the amount people can save in their pension pot before tax charges kick in – at just over £1 million.