Rishi Sunak is expected to ease a “terrifying” pressure on UK households’ cost of living next week, as he partes out some of the estimated £25bn in public finances until the country’s economic prospects become clearer.
The chancellor told Tory activists on Friday his priority was to cut taxes, saying he wanted to “make a difference where we can” to help people through the tight household budget.
Tory MPs expect Sunak to use his spring statement on Wednesday to cut fuel taxes, while Treasury officials have also considered broader tax cuts in recent weeks to mitigate a looming crisis in the cost of living.
“People are really terrified. They are facing a triple blow from higher petrol and diesel prices, higher utility bills and higher household bills,” said Robert Halfon, Tory chairman of the House of Commons Education Committee.
“Helping people should be a top priority for the Chancellor next week. People struggle to keep their heads above water. We are talking about red alert.”
Halfon was one of more than 50 Tory MPs who wrote an open letter to Sunak calling for a cut in fuel tax or VAT to lower prices at the pumps.
Conservative MPs believe Boris Johnson, who is seen in the Treasury as a lover of “giveaways”, will ensure this cut takes place, even if the Chancellor believes the recent sharp drop in the price of crude oil in world markets will have more effect than any other fuel tax.
Johnson and Sunak agreed on the main thrust of the Spring Statement more than a week ago, but their relationship has been tense in recent months. The prime minister’s allies believe the chancellor has shown little support during the recent partygate scandal.
Meanwhile, Sunak this week urged Johnson to delay the publication of an energy security strategy to give him more time to assess the costs of plans to develop nuclear and green energy.
The chancellor’s allies insist that the spring statement is not a “mini-budget” and that it will be “policy light”, but the chancellor is under intense political pressure to provide assistance to households.
Disposable incomes are expected to come under more pressure than ever before in 30 years, according to the Bank of England, with inflation rising above 8 percent this spring, and energy bills set to rise to an annual average of £1 from October. 3,000.
At the Conservative Spring Conference in Blackpool, Sunak reassured activists that he had raised enough taxes to stabilize public finances and that “my priority going forward is to cut taxes”.
Those involved in the preparation of the Spring Memorandum indicate that in recent weeks adjustments to income tax and national insurance contributions and thresholds have been considered.
The finance ministry declined to comment, but Sunak has told his colleagues he wants to postpone major fiscal decisions until later in the year, when the economic picture, including the situation in Ukraine, may become clearer.
While the energy crisis is now being felt at the petrol pumps, Sunak argues that households will be protected from a further rise in domestic energy bills until a new price cap is set in October, which could rise to £3,000.
But analysts believe Sunak will have more “wiggle room” to help households if he chooses to intervene next week, rather than wait for his main budget in the fall.
Stronger employment growth and higher wage and price inflation have pushed tax revenues well above the October forecast by Sunak’s tax watchdog, putting public borrowing on track to be about £25bn lower than expected in 2021-22.
The effects of the Russian invasion of Ukraine will lead the Office for Budget Responsibility to forecast severe pressure on household incomes, which will lower real growth forecasts, but higher inflation will significantly improve the outlook for public finances, especially as this is not expected to result in much higher interest rates, increasing the cost of paying off the government debt.
Higher inflation means income taxes and tax revenues are rising faster than expected. The Institute for Fiscal Studies has calculated that if the Chancellor freezes all income taxes and thresholds until 2025-26, higher inflation will turn the projected tax increase of £8 billion a year into a £20 billion increase a year.
George Buckley, chief economist at Nomura, said the deficit is “turning out better”. [this year] give the chancellor some leeway” to address the cost of living crisis facing households.
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