Pensioners and public sector workers could be clobbered as the Government tries to repair the economy in the wake of coronavirus, according to a leaked Treasury plan.
A document seen by the Daily Telegraph estimates the Budget deficit could hit £337billion this year because of the pandemic.
That is compared to the forecast £55billion in March's Budget.
The assessment, drawn up for Chancellor Rishi Sunak and dated May 5, warned that to plug such a gaping hole in the public coffers through tax revenue rises would be "very challenging without breaking the tax lock" – an election promise not to raise taxes.
Measures including income tax hikes, a two-year public sector pay freeze and the end of the triple lock on pensions may be required to fund the debt.
The triple lock means pensions rise by at least 2.5%, the inflation rate or average earnings growth, whichever is largest.
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The document, seen by the Telegraph, says: "To fill a gap this size (in the public finances) through tax revenue risers would be very challenging without breaking the tax lock.
"To raise fiscally significant amounts, we would either have to increase rates/thresholds in one of the broad-based taxes (IT, NICS, VAT, CT) or reform one of the biggest tax reliefs (e.g. pensions tax)."
It suggests a two-year public sector pay freeze could save £6.5billion by 2023-24 while "stopping the rising cost" of the pension triple lock would cut £8billion a year. A 1p rise in income tax could raise £5billion a year.
The document predicts a worst case scenario of a £516 billion current budget deficit. The best case scenario, relying on the economy recovering sharply, would mean a £209 billion shortfall.
Asked about the leaked document, Transport Secretary Grant Shapps said it was "a speculative thing at this stage" and "I don’t think we recognise those figures."
He told Sky News: "In terms of payment, we’ll have to have future budgets and get to that.
“But right now we are still in the midst of this thing. And we’re clear we’re not going to go back to a world of austerity in order to do that.”
But Labour urged Boris Johnson and Rishi Sunak to reject the leaked proposals completely - as they come after almost 10 long, hard years of austerity.
Shadow chancellor Anneliese Dodds said: "A lack of resilience in our public services, caused by 10 years of underfunding, has made it harder to deal with the challenge of coronavirus.
"After all our public services and key workers have done to save lives during this pandemic, there must be no return to a society where we lack that resilience.
"Both the Chancellor and the Prime Minister must urgently make a statement rejecting these plans."
Chairman of the Police Federation of England and Wales John Apter said any pay freeze would be "morally bankrupt" and urged the Government to rethink any plans for "financially punishing our public sector workers".
He tweeted: "If there is any consideration in financially punishing our public sector workers then I urge a rethink.
"The Chancellor, RishiSunak and thousands of others have clapped for our key workers every Thursday.
"To even consider freezing the pay of our essential public sector workers to help the financial recovery would be morally bankrupt and would be a deep and damaging betrayal."
The Treasury declined to comment on the report, but it is understood that the document is one of many put together by different teams to discuss ideas about future policy.
A source said the document "does not reflect Government policy".
It comes after the Chancellor confirmed he will continue subsidising the wages of furloughed workers all the way to October 31.
The furlough scheme, currently supporting 7.5million jobs, will be extended but employers will be expected to pick up a share of the bill from August.
That has prompted fears of mass redundancies - because even workplaces that are still completely shuttered will have to contribute.
And Chancellor Rishi Sunak last night suggested the UK is already in a recession.
Asked if we are looking at a recession he told the BBC: "We already know that many people have lost their jobs and it breaks my heart, we've seen what's happening with Universal Credit claims already.
"This is not something that we're going to wait to see - it's already happening.
"There are already businesses that are shutting they're already people who have lost their jobs.
"And as I said that's heartbreaking to me and that's why I'm working night and day to limit the amount of job losses."
Mr Shapps added today: “Everyone will have expected there to be something of a hit to the economy people have been staying at home and there’ll be more to come, clearly."
As the economic pressure mounts, the government has taken the first "baby step" to easing some lockdown restrictions in England from today.
People are being "actively encouraged" to go back to work - avoiding public transport - if they cannot work from home.
And the housing market is being reopened in England.
Yet the human toll of the Covid-19 pandemic has been laid bare and is still mounting by the day.
Official figures indicate there have been more than 40,000 coronavirus-related deaths in the UK.
The furlough scheme - which pays 80% of a worker's salary up to a £2,500 monthly cap - will remain unchanged until the end of July, a one-month extension.
Economists at the Institute for Fiscal Studies suggested that could cost £10 billion, taking the total amount of support provided by the scheme to around £60 billion.
The Government has, meanwhile, rejected the idea of a universal basic income (UBI) in the future, despite support for the scheme in Scotland.
The case for UBI, which sees governments provide citizens with a basic rate of income, regardless of financial earnings, has gained traction over the weeks as millions of people are furloughed from work during the crisis.
But Business Secretary Alok Sharma said, while UBI was being tested in other countries, it "has not been taken forward".
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