The Chancellor of the Exchequer Sunak also said the UK would slash the fuel duty to alleviate cost pressures on ordinary Britons.
Rishi Sunak announced a 6-billion pound ($ 7.9 billion) tax cut for workers, slashed fuel duty and signaled a future reduction in income tax as he sought to shield ordinary Britons from a squeeze on living standards that’s been worsened by the war in Ukraine.
“My tax plan delivers the biggest net cut to personal taxes in over a quarter of a century,” the Chancellor of the Exchequer told the House of Commons on Wednesday as he delivered his Spring Statement.
The measures go further than the Treasury had suggested in the run-up to the statement, which was originally billed as an update on the state of the economy. In the event, Sunak’s package was on a par with a full budget.
Even so, they are unlikely to fully shelter struggling Britons from a pickup in inflation that the government’s fiscal watchdog estimates will hit a 40-year high of 8.7% this year and squeeze living standards by the most on record. Prices are already rising at the fastest pace in three decades, and further costs are set to bite next month when a cap on domestic energy bills rises by 54% and a new 1.25% payroll comes in to pay for health and social care.
The Office for Budget Responsibility said net tax cuts announced on Wednesday offset only a sixth of the tax rises introduced since Sunak became chancellor in February 2020.
Tim Pitt, who advised former Tory Chancellor Philip Hammond, said on Twitter that Sunak’s package is “pretty generous,” but unlikely to be enough to help those on the lowest incomes. “Risk is he hasn’t done enough for the poorest given how grim the squeeze will be for them,” he said.
Sunak said the conflict in Ukraine poses a risk to economic recovery as the OBR downgraded its 2022 growth forecast to 3.8%, from a previous estimate of 6%.
To address rising costs, Sunak:
- Increased the threshold at which Britons start paying National Insurance, a payroll tax, by 3,000 pounds – rather than the planned 300 pounds. He said the tax cut would help 30 million people
- Said he would cut the basic rate of income tax to 19% from 20% in 2024, a move worth 5 billion pounds a year and the first reduction in 16 years
- Cut fuel duty by 5 pence a liter until March 2023 – the biggest ever cut in the levy and worth 2.4 billion pounds. Combined with a previously-announced freeze at the level, the measure is worth 5 billion pounds
- Scrapped sales tax on domestic energy efficiency measures such as insulation, solar panels and heat pumps
- Doubled to 1 billion pounds a program of grants for struggling Britons
- Raised the employment allowance to 5,000 pounds, representing a tax cut for half a million small businesses
- Promised to cut taxes for business investment in the fall
The chancellor is trying to balance his oft-stated desire to bring order to the public finances with pledges to begin cutting taxes and increasing demands from across the political spectrum to help ordinary Britons struggling to cope with surging inflation.
Borrowing over the next fiscal year is now forecast to be 99 billion pounds – 16 billion higher than previously predicted, with debt interest costs hitting a record 83 billion pounds. Further into the future, borrowing predictions were slashed, leaving them a cumulative 29 billion pounds lower over five years.
“More borrowing is not cost- or risk-free,” Sunak said. “That’s why we will continue to weigh careful calls for additional public spending.”
From July, people will be able to earn £ 12,570 a year without paying any income tax or National Insurance.
It’s a £ 6bn personal tax cut for 30 million people in the UK.
It’s worth over £ 330 a year and is the largest increase in a basic rate threshold – ever pic.twitter.com/4o2cjaiEGH
– Rishi Sunak (@RishiSunak) March 23, 2022
The forecasts, from the Office of Budget Responsibility, showed growth will be 1.8% in 2023 and 2.1% in 2024, from estimates of 2.1% and 1.3% in October. Inflation will average 7.4% this year, Sunak said.
The fiscal update comes on the day Britain’s inflation rate surged to 6.2%. The surge is raising speculation that the Bank of England will drive up interest rates more in the coming months, further tightening budgets for millions of households. Money markets are betting the key rate, now at 0.75%, will hit 2% by the end of this year.