Rishi Sunak is widely anticipated to offer an extensive package of support to bolster “security for working families” to help tackle the cost of living as he delivers his Spring Statement this Wednesday.
With petrol and diesel prices at the pumps soaring by 50p per litre since this time last year, driven in part by Western sanctions on Russia over its operation to "demilitarise and de-Nazify" Ukraine, the UK Chancellor has reportedly been mulling a 5p-per-litre cut in fuel duty in the spring mini-budget.
Furthermore, Sunak had indicated earlier that his Spring Statement - one of two that the HM Treasury makes annually to Parliament upon publication of economic forecasts – would contain new measures that would show the government is prepared to “stand by” budget-squeezed families.
“We will confront this challenge to our values not just in the arms and resources we send to Ukraine but in strengthening our economy here at home,” said Rishi Sunak in pre-released extracts of his speech to MPs.
That, according to the Chancellor, includes “security for working families as we help with the cost of living,” as well as “the security of more resilient public finances”.
In interviews ahead of the Spring Statement, Sunak highlighted that he was aware high prices at the pumps are “one of the biggest bills people face”.
Appearing on Sky News’ Sophy Ridge On Sunday Sunak had stated:
“Obviously I can’t comment on specific things (that will be in the spring statement). But what I would say, I understand that… I have a rural constituency, people are incredibly reliant on their cars and this is one of the biggest bills that people face, watching it go up.
Fuel Duty
As prices at the pumps have soared to record highs of £1.66 per litre for petrol and £1.77 for diesel, slashing fuel duty has long been demanded by Conservative backbenchers.
In the UK, fuel duty is 57.95p a litre, plus 20% VAT, and has remained frozen for 12 years. Labour shadow business secretary Jonathan Reynolds was cited by UK media outlets as saying that the mulled 5p per litre cut would save families no more than an average of £2 per tank of fuel.
According to The Resolution Foundation, even a 10p fuel duty cut would reverse only around a quarter of the past year’s rise in costs.
National insurance
Another option open to the UK Chancellor is to raise the threshold at which workers start paying national insurance contributions (NICs) - Britain's social security tax.
If the threshold, which will stand at £9,880 from April due to the 1.25 per cent NI rise earmarked for health and social care, is brought closer to the personal allowance of £12,570 that applies to income tax, it would ensure that around 150,000 lower-income workers are exempt.
Sunak could also choose to defer the increase planned for this April.
To support poorer households, the British Chancellor has also been facing calls to raise the value of universal credit by more than the 3.1% set for April, originally based on September’s inflation rate.
Furthermore, to offer business support amid high energy costs, the Confederation of British Industry (CBI) has been urging Sunak to turn his “super deduction”, offering tax savings on business investment, into a permanent deduction to offset a rise in corporation tax from 19% to 25% planned from April 2023.
The super-deduction tax break, intended to spur business investment, was a tax relief introduced for two years for expenditure from 1 April 2021 to 31 March 2023.
A company can claim back up to 25p for every pound invested in ‘qualifying’ machinery and equipment, and was touted by Rishi Sunak as a “direct way to help businesses invest.”
Cost of Living Crisis
As Rishi Sunak presents his update on the economy based on the forecast from the Office for Budget Responsibility (OBR) there are expectations for a weaker economic outlook amid high inflation set to eat away at the spending power of consumers. According to the Bank of England, inflation will reach 8% this April, possibly later on peaking at 10%.
Furthermore, many British households will face what financial expert Martin Lewis called a “fiscal punch in the face” when the energy price cap increases from 1 April for approximately 22 million customers. Those on default tariffs paying by direct debit will face an increase of £693 from £1,277 to £1,971 per year. Prepayment customers will see an increase of £708 from £1,309 to £2,017.
Lewis had warned on Sunday at Parliament's business and energy committee:
“I’m the Money Saving Expert. I’m virtually out of tools to help people. Money management will not solve this. We need political intervention."