Chancellor Jeremy Hunt will be able to include measures in his Spring Budget which will prevent a spike in energy bills and petrol prices because spending has been lower than expected, according to a think tank.
The Resolution Foundation said that lower-than-expected spending on energy support schemes and stronger tax receipts will contribute to borrowing coming in around £30bn lower this year than was forecasted by Office for Budget Responsibility last November.
The think tank believes Hunt will use this extra cash to provide further support to UK households struggling with the cost of living.
One of the measures the think tank expects to be announced in the Spring Budget is extending the current £2,500 level of the Energy Price Guarantee for three months. This would avoid a 20% increase in household energy bills from April, with a one-off cost of around £3bn. Scrapping the planned 12p rise in Fuel Duty “is more problematic”, permanently costing up to £5bn a year.
Cara Pacitti, senior economist at the Resolution Foundation, said: “The chancellor will want his upcoming Budget to signal a new, lower inflation and higher growth, phase for the UK economy. And there has certainly been some good news with the economy expected to be bigger and borrowing lower this year than feared.
“But there is no escape from having to focus on the cost of living crisis that families are still living through. Jeremy Hunt is likely to act to prevent April’s spikes in energy bills and fuel duty.
However, the chancellor is still facing decisions around resolving strikes, raising employment, and reforming tax.
The Resolution Foundation said that the chancellor has limited “wriggle room” to resolve public sector pay disputes.
Delivering a 5.5% pay settlement, to make progress on closing the public-private sector pay gap and possibly resolve industrial disputes, would cost £5bn more than the 3.5% pay increase that departments say they can afford within current budgets.
“Looking further ahead, the chancellor needs to end public sector pay disputes and wrestle with the UK’s stagnant economic growth, by focusing on encouraging more firms to invest, and people to work,” Pacitti added.
The chancellor is also under pressure to revisit plans for corporation tax, with April bringing the end of the ‘super deduction’ on firms’ investment and the start of a six percentage point rise in the headline corporation tax rate.
The Spring budget will be delivered in Parliament on Wednesday, 15th March.