Chancellor of the Exchequer Rishi Sunak slashed fuel duty and boosted financial support for poorer households as he pledged to stand by the British public during the cost-of-living crisis by delivering a £6-billion tax cut for workers.
Mr Sunak signalled a future reduction in income tax for households grappling with higher fuel, food and energy costs as inflation surged to 6.2 per cent — the fastest rise in 30 years — and the war in Ukraine caused further misery for the British economy.
“My tax plan delivers the biggest net cut to personal taxes in over a quarter of a century,” Mr Sunak told the House of Commons on Wednesday as he delivered his Spring Statement amid the soaring cost of living.
While the measures will help ease the strain on households, Mr Sunak said that Britain's economy will grow more slowly this year than previously predicted and inflation will be much higher.
The economy is now set to grow by 3.8 per cent in 2022, a sharp slowdown from a forecast of 6 per cent made in October, forecasts drawn up by the Office for Budget Responsibility show, while growth in 2023 will slow to 1.8 per cent, down from its previous prediction of 2.1 per cent.
Meanwhile, inflation, which hit 6.2 per cent in February, is now expected to average 7.4 per cent in 2022, the budget office said, compared with October's forecast of 4 per cent.
Mr Sunak's so-called rabbit in the hat moment was a cut in the basic rate of income tax from 20 per cent to 19 per cent in 2024.
The 1 pence in the pound reduction is worth £5 billion ($6.6bn) for workers, savers and pensioners, Mr Sunak said, and will be the first cut to the basic rate in 16 years.
“The actions we have taken to sanction Putin's regime are not cost free for us at home. The invasion of Ukraine presents a risk to our recovery, as it does to countries around the world,” Mr Sunak said.
“We came into this crisis with our economy growing faster than expected, with the UK having the highest growth in the G7 last year. But the [Office for Budget Responsibility] has said specifically: 'There is unusually high uncertainty around the outlook'.”
While the chancellor pushed ahead with his planned increase to National Insurance, the threshold at which people will start to pay the tax will go up by £3,000 to £12,570.
This means that Britons will keep more of what they earn before they start paying personal taxes, with the cut worth more than £6bn and set to benefit almost 30 million working people, with a typical employee saving in excess of £330 in the year from July.
The chancellor outlined three measures to directly tackle the costs crisis including a 5-pence reduction to fuel duty — the biggest cut of fuel duty rates ever — scrapping VAT on energy efficiency measures and doubling household support for those most in need.
In the chancellor’s first major announcement since the start of the war in Ukraine, fuel duty will be cut by 5 pence per litre.
“For only the second time in 20 years, fuel duty will be cut, not by 1, not even by 2 but by 5 pence per litre, the biggest cut to all fuel duty rates ever,” Mr Sunak said, with the cut remaining in place until March next year.
Richard Eagling, senior personal finance expert at NerdWallet, said cutting fuel duty could provide a vital lifeline to many households.
“That said, this will only go so far in helping struggling households,” he added.
“Indeed, soaring energy prices continue to place unprecedented pressure on household finances. And they are showing no signs of slowing down — so much so that a new report from Citizens Advice indicates that more than 14 million people may no longer be able to afford energy bills by October 2022.”
Mr Sunak also pledged to slash VAT on energy efficiency products, such as solar panels, heat pumps and insulation, something not possible in the past because of EU rules.
The chancellor said a typical family installing solar panels could save £1,000 on installation and up to £300 a year on energy bills.
In his third announcement, he offered a of £500 million cash boost for the government's existing Household Support Fund, taking its overall value to £1bn.
It will be up to local authorities to distribute the extra money, which will be handed over from next month.
Mr Sunak also said that Britain will run a larger budget deficit as a percentage of economic output in the coming 2022/23 financial year than previously forecast, but he announced cuts to the forecast for later years.
Citing new forecasts from the Office for Budget Responsibility, Mr Sunak said the deficit for 2022/23 was likely to fall to 3.9 per cent of gross domestic product from 5.4 per cent this year, compared with a previous forecast of 3.3 per cent published in October.
The deficit is on course to fall to 1.1 per cent in 2026/27, less than a previous forecast of 1.5 per cent.
Company%20profile
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The currency conundrum
Russ Mould, investment director at online trading platform AJ Bell, says almost every major currency has challenges right now. “The US has a huge budget deficit, the euro faces political friction and poor growth, sterling is bogged down by Brexit, China’s renminbi is hit by debt fears while slowing Chinese growth is hurting commodity exporters like Australia and Canada.”
Most countries now actively want a weak currency to make their exports more competitive. “China seems happy to let the renminbi drift lower, the Swiss are still running quantitative easing at full tilt and central bankers everywhere are actively talking down their currencies or offering only limited support," says Mr Mould.
This is a race to the bottom, and everybody wants to be a winner.
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