Taxes are likely to reach their “highest sustained level in history” as the Government seeks to repair the damage to the public finances caused by the coronavirus crisis, a leading economist warned.

Paul Johnson, director of the Institute for Fiscal Studies think tank, said “we are in a new phase of UK economic history”, after Chancellor Rishi Sunak set out plans to raise extra funds from business and personal taxes.

The IFS said the Budget’s forecast of raising an extra £29 billion by 2025-26 was “big by recent standards”.

Mr Johnson said it was the “biggest tax-raising budget since Norman Lamont’s final budget” in 1993 – pointing out “he was sacked a couple of months later”.

In his Budget, Mr Sunak set out plans for corporation tax on business profits to rise from 19% to 25% in 2023, although there will be lower rates for smaller firms.

The tax hike is forecast to raise an extra £17.2 billion a year by 2025-26.

He also announced a freeze in income tax thresholds at April 2021 levels, which will rake in an extra £8.18 billion by 2025-26 as more people are dragged into paying the tax, or into the higher band, as wages increase.

The IFS said about 1.3 million people would be brought into the income tax system, with about 10% of adults expected to be dragged into the higher 40p rate.

The measures would be sufficient to eliminate the current budget deficit in 2025-26, meaning that the Government would not have to borrow to cover day-to-day spending.

Mr Johnson said: “Make no mistake, this proposed increase in the main rate of corporation tax is a big reversal of decades of policy direction and a significant risk.

“For all the rhetoric about it leaving the headline rate here below that in other G7 countries, our effective tax rate will be relatively high.

“Mr Sunak made much of his desire to be honest and to level with the British people.

“The fact that he felt constrained to raise taxes by hitting companies and through freezing allowances, rather than through more explicit rises in people’s taxes, suggests there are limits to how far he wants to level with us, as he attempts to raise the overall tax burden to its highest sustained level in history.”

Isabel Stockton, a research economist at the IFS, said: “A healthy economic recovery, combined with a substantial tax increase, would be enough to allow the Government to cover its day-to-day spending with revenues by the middle of the decade, borrowing only to invest.

“This is one definition of ‘balancing the books’, but this success would be at risk if the recovery falters, or tight spending plans – or for that matter the large tax rises announced today – prove undeliverable.”

The Resolution Foundation, an economic think tank focusing on those on lower and middle incomes, said the Chancellor was right to continue to support the economy beyond the end of lockdown restrictions.

However chief executive Torsten Bell questioned whether the Government would see through his plans to rebuild the public finances by pushing up taxes – particularly on business.

“Welcome extensions of crisis support until the end of economic restrictions this summer are to be followed by a major new stimulus policy to drive business investment up in the coming years,” he said.

“The scale of that giveaway was only matched by the size of the Chancellor’s takeaway from firms by the middle of this decade, with the largest increase in corporation tax since the early 1970s being the centrepiece of the largest tax-raising Budget since 1993.

“With taxes rising to their highest share of GDP since the 1960s the Chancellor has chosen to prioritise the Conservative Party’s credibility for caring about the public finances over their attachment to low taxes.

“Whether that decision will stand the test of time remains to be seen.”