Sunak bid to offset cost of living crisis
HOUSEHOLDS face the biggest fall in living standards on record despite Rishi Sunak promising tax cuts for millions of workers to address soaring inflation and the economic impact of the war in Ukraine.
The Chancellor shielded lower earners from the impact of the forthcoming national insurance hike, slashed 5p off fuel duty and promised to cut income tax by 1p in 2024.
But economic growth forecasts were downgraded and inflation is set to reach its highest level for 40 years, leading to household disposable incomes falling by 2.2% per person in 2022-23.
The Office for Budget Responsibility (OBR) downgraded growth in gross domestic product - a measure of the size of the economy from the 6% forecast for this year at the time of the Budget in October to 3.8%.
Next year’s growth forecast has been downgraded from 2.1% to 1.8%.
Inflation is forecast to hit 8.7% in the fourth quarter of 2022 and to average 7.4% over the year, with wages failing to keep pace with rising prices.
The OBR said inflation - combined with rising taxes - will “weigh heavily on living standards in the coming 12 months”.
Despite a £6 billion cut in national insurance and a previously announced £9 billion package to help with energy bills, “real household disposable incomes per person fall by 2.2% in 2022-23”, the biggest hit in a single year since records began in 1956-57.
The cost-of-living crisis, driven by fuel and energy prices which were rising even before Vladimir Putin’s invasion of Ukraine, will be exacerbated in April by the 1.25 percentage point hike in national insurance to fund the NHS and social care.
But Mr Sunak unveiled a plan to increase the threshold at which people start paying national insurance contributions (NICS) by £3,000 to £12,570 from July, benefitting around 30 million workers with a tax cut worth more than £330. It will mean 70% of workers will pay less national insurance than they otherwise would have, even after April’s tax hike. He promised further support in 2024 with a pledge to cut the basic rate of income tax from 20p in the pound to 19p - “a £5 billion tax cut for over 30 million people”. Mr Sunak said his tax plan “delivers the biggest net cut to personal taxes in over a quarter of a century”.
But the Chancellor acknowledged the war in Ukraine and sanctions on Russia are “not cost-free for us at home” and present a “risk” to the recovery.
Despite the measures announced by the Chancellor, the overall burden of taxes is set to reach the highest level since the late 1940s by 2026-27.
Pat Mcfadden, Labour’s shadow Treasury chief secretary, said Mr Sunak had “left households and businesses to fend for themselves in the middle of a devastating cost-ofliving crisis”.
“The OBR has confirmed today the biggest hit to household incomes on record,” he said. “Even after the changes today, under the Conservatives, Britain is facing the highest tax burden in 70 years, with the Chancellor confirming £24 billion of additional tax rises about to hit.”
Industry group Made UK said the lack of action by the Chancellor on energy costs for business was “hard to fathom”.
Chief executive Stephen Phipson said: “Companies would have been looking for substantial business support measures to help alleviate these.”