Rishi Sunak has cut fuel duty by 5p a litre, raised the threshold at which workers start paying national insurance by £3,000 a year and announced a future 1p reduction in income tax in response to the fastest rise in the cost of living in three decades.

On a day when the annual inflation rate rose to 6.2%, the chancellor said the basic rate of income tax would be cut from 20p to 19p in 2024, while his £6bn national insurance initiative would offset the impact of across-the-board price increases.

The chancellor used his spring mini budget to announce an immediate fuel duty cut for motorists and a £330-a-year national insurance cut for the average worker struggling to make ends meet. VAT on energy-efficiency products was cut from 5% to zero.

However, he was accused of announcing a woefully inadequate package of measures that only amounted to tinkering around the edges instead of matching the level of support needed to help tens of millions of people through a cost of living crisis.


Sunak said that from July the rate at which people start paying national insurance would be £12,570 – the same as the income tax personal allowance. The deferred 1p cut in income tax was fully costed, he added, and would come at a time when borrowing and inflation were low.

But the package offered little to those relying on means-tested benefits. Paul Johnson, the director of the Institute for Fiscal Studies thinktank, said benefits were going up by just over 3% next month at a time when claimants were facing cost of living increases of about 10%.

Johnson added that the planned cut in the lowest income tax rate alongside raising the threshold at which national insurance contributions are paid “drives further” the wedge between taxation of unearned income and earned income.

He said the move would yet again benefit “pensioners and those living off rents” at the expense of workers.

The big omission from this statement was anything for those subsisting on means tested benefits. They will be facing cost of living increases of probably 10% but their benefits will rise by just 3.1%.

And cut compared to last year if you account for withdrawal of £20 UC uplift

— Paul Johnson (@PJTheEconomist) March 23, 2022

Sunak had been under strong pressure from some Tory MPs to scrap his planned rise in employer and employee national insurance contributions but said it was important to repair the damage to the public finances caused by the coronavirus pandemic.

Two years to the day after the announcement of the first Covid-19 lockdown, the chancellor admitted the Russian invasion of Ukraine would lead to slower than expected growth and higher inflation this year than previously forecast.

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The independent Office for Budget Responsibility (OBR) said it was now pencilling in growth of 3.8% for the UK this year compared with the 6% it had been forecasting when Sunak announced his budget last October. Inflation is predicted to hit a 40-year peak of 8.7% in the final three months of 2022.

The OBR warned that, even after the measures announced in the mini budget, households would still see a dramatic fall in their living standards this year.

“With inflation outpacing growth in nominal earnings and net taxes due to rise in April, real living standards are set to fall by 2.2% in 2022-23 – their largest financial-year fall on record – and not recover their pre-pandemic level until 2024-25,” it said.

Source: Blick Rothenberg. Shows impact of NI surcharge in April and change in NI threshold in July

Rachel Reeves, the shadow chancellor, said Sunak was “making an historic mistake” by going ahead with the national insurance rise and that he should have instead unveiled a windfall tax for oil and gas producers that could have raised £3bn.

Labelling the Conservatives “the party of high taxation”, Reeves said the chancellor was less like Nigel Lawson, the former chancellor whose picture hangs above Sunak’s desk in No 11, and more like “Ted Heath with an Instagram account”.

Her speech was designed to sting given that Lawson was known for significantly reducing the rates of income tax during his years running the Treasury in the 1980s, while Heath’s premiership the previous decade was blighted by record inflation and ineffective measures to mitigate it.

Conservative MPs welcomed Sunak bowing to pressure to help struggling households and said the fuel duty cut would help people immediately, while the national insurance threshold increase would be of benefit in the longer term, though some believed he could have gone further.

But the chancellor was accused of being “allergic to welfare” over his resistance to raising benefit payments, such as universal credit or the warm homes discount, by Ryan Shorthouse, chief executive of the centre-right thinktank Bright Blue.

Shorthouse said the fuel duty cut was “poorly targeted” at helping the worst off in society, given that more than half of the poorest 20% of households do not have a car.

The Social Market Foundation’s chief economist, Aveek Bhattacharya, also said the spring statement “failed to measure up to the hardship in store for the poorest families, who face deep economic pain unless further action is taken” and that Sunak’s approach to tackling the cost of living crisis was far from the “whatever it takes” mantra adopted during the pandemic.

The promise of cutting income tax in 2024 was taken by some Conservative insiders as the clearest signal yet that the next general election will be held that year.

Sunak had been clear in the past that he hoped to cut taxes by the time of the next election, but surprised many by pre-announcing the move, suggesting he was seeking to head off criticism that the measures announced this week would not go far enough.


Larry Elliott and Aubrey Allegretti

The GuardianTramp

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