Chancellor Rishi Sunak has been told by MPs that “now is not the time for tax rises” – though a moderate hike in corporation tax could help the government without damaging growth.

A report from the Treasury select committee acknowledged that the public finances are on an “unsustainable” path long term but argued that it was too soon to enact a significant squeeze in this week’s Budget.

Debt has risen to more than £2trn in the wake of the coronavirus crisis – representing nearly 100% of GDP, the highest level since the 1960s.

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The MPs also pointed to the increasing cost of an ageing population on the public purse and said Tory manifesto promises to hold back income tax, national insurance and VAT would “come under pressure under the current circumstances”.

Mel Stride, chair of the Treasury select committee, said public finances were on an “unsustainable long-term trajectory”.

He said: “Budget 2021 is not the time for tax rises of fiscal consolidation, which could undermine the economic recovery.

“But we will probably need to see significant fiscal measures, including revenue raising, in the future.”

The MPs said a move reportedly being prepared by the chancellor to freeze income tax thresholds – a tactic which would not technically be a tax-raising measure but still drag employees into paying more as their salaries rise – would cause “minimum economic distortion”.

They also argued that a “moderate” increase in the level of corporation tax – also reported to be in Rishi Sunak’s plans this week – could “raise revenue without damaging growth” especially if balanced with other tax relief measures for businesses.

But the report added that a “very significant” hike in the rate, currently at 19%, would be “counterproductive”.

It comes after the chancellor heavily hinted at an extension to the furlough scheme – which subsidises wages for employees temporarily laid off due to the COVID-19 crisis – but said he needed to “level” with the public about the economic cost of the pandemic.

Mr Sunak told Sky’s Sophy Ridge On Sunday programme: “I think in the short term what we need to do is protect the economy and keep supporting the economy through the road map, and over time what we need to do is make sure our public finances are sustainable.

“That isn’t going to happen overnight, that’s going to be work that takes time given the scale of the shock that we’ve experienced but if you’re asking do I want to deliver low taxes for people, of course I do.”

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