Chancellor Rishi Sunak has delivered his Spring Statement in the House of Commons, announcing that fuel duty will be cut by 5p from 18:00 GMT on Wednesday [March 23], and the threshold for paying National Insurance will be raised by £3,000.
The fuel duty cut will remain active until March 2023 to help ease prices at the pump amid soaring costs, while the income threshold for National Insurance payments will increase to £12,570 in July, from £9,600.
Referring to the raising of the National Insurance threshold, Sunak said that the move was akin to a tax cut of more than £330 per year for some 30 million people who will benefit.
Sunak also set out a promise to cut the basic rate of income tax from 20 per cent down to 19 per cent before the end of the current Parliament in 2024.
He told the Commons that it would “clearly be irresponsible to meet this ambition [cutting income tax] this year”, but that forecasts of inflation being “back under control” and national debt down by 2024 made it possible to promise a cut within two years.
Other pledges put forward by the chancellor included removing VAT on the home installation of any energy-saving devices, such as any form of home insulation, heat pumps or solar panels. Elsewhere, local authorities will be boosted by a further £500 million via the Household Support Fund from April to help vulnerable households with rising energy prices.
While Sunak neither postponed nor scrapped the planned National Insurance hike from April, the Employment Allowance will be increased from £4,000 to £5,000 from next month to offer relief to smaller businesses. The retail, hospitality and leisure sectors will also be handed a 50 per cent discount in business rates up to £110,000.
The chancellor had been urged to act as the country finds itself in the grip of a cost-of-living crisis. Indeed, the annual rate of inflation hit 6.2 per cent in February and is likely to average 7.4 per cent over the remainder of 2022, forecast to peak at 8.7 per cent in the fourth quarter of the year.
The Office for Budget Responsibility [OBR] has warned that inflation combined with higher taxes will culminate in the biggest fall in living standards on record, while borrowing as a percentage of GDP is expected to drop from 83.5 per cent over the upcoming financial year to 79.8 per cent in 2026/27.
The OBR also expects the government to spend £83 billion on debt interest in the next financial year, which constitute the highest figures on record.
Meanwhile, the unemployment rate which currently stands at 3.9 per cent is predicted to be lower in each year of the OBR’s future forecasts, but the number of people employed between now and 2027 could fall by as much as 400,000 compared to before the Covid-19 pandemic, as working people begin to retire.
The OBR has also revised its outlook for UK economic growth this year following the outbreak of the war in Ukraine, with the economy projected to expand by 3.8 per cent over the year, a downgrade on its previous estimate of 6.5 per cent.
The OBR also stressed that is “too early to know the full impact of the Ukraine war” but said what was certain is that Russia’s incursion on its neighbour has brought with it “major repercussions for the global economy, whose recovery from the worst of the pandemic was already being buffeted by Omicron, supply bottlenecks, and rising inflation”.
The impact of high inflation and supply chain pressures means that the economy beyond 2022 is expected to grow by 1.8 per cent in 2023, 2.1 per cent in 2024, 1.8 per cent in 2025, and 1.75 per cent in 2026, as per OBR predictions.
Responding to the Spring Statement, Labour shadow chancellor Rachel Reeves said that Sunak should have gone further by abandoning the National Insurance increase and placing a windfall tax on oil and gas firms to help subsidise energy bills for households.
Reeves said: “In eight days, people's energy bills will be rising by 54 per cent, two weeks today the chancellor's tax hike will start hitting working people and their employers.
“His National Insurance tax rise was a bad idea last September and he's admitted it's an even worse one today.”
Reeves went on to attack the VAT cut on energy efficient materials, labelling it “wholly inadequate”, adding that the measures being taken would hit “millions in the middle” and not affect the wealthiest.
She said: “The truth is people can no longer afford the Conservatives - working families can't, pensioners can't.
“The truth is the Conservatives have become the party of low growth and the party of high tax.”
Nigel Edwards, chief executive of the Nuffield Trust, believes that the chancellor's measures outlined in the Spring Statement will likely mean that the health and care sector in real terms sees no further increases in funding for the remainder of the current Parliament, despite government pressing ahead with the National Insurance rise.
Edwards said: “Changes to the National Insurance threshold announced today will provide some welcome support to low earners, and will not reduce the amount of money already committed to health and care. But by choosing to put tax cuts above spending the chancellor has made it less likely that health and care will see any further increases in funding during this Parliament.
"This underlines that despite a boost from the [health and social care] levy, the NHS will still face tight budget constraints. Funding increases to the NHS’s core budget become less generous in each of the next three years, which is why the chancellor has doubled the annual efficiency target to 2.2 per cent. In reality, however, NHS Trusts will need to find even more room for efficiency than that, as at the same time there will be steep reduction in Covid support despite the fact this cost pressure is likely to remain in place for some time yet.
“Making savings within staffing costs will be near impossible given the shortages across health and care, and the impact of inflation on costs and pay. The squeeze in living costs will undoubtedly heap more pressure on exhausted staff once again grappling with rising numbers of patients in hospital with Covid.”
Image taken from Wikimedia Commons