Yahoo Finance Spring Statement: Rishi Sunak cuts income tax and fuel duty
Watch: Spring Statement: Key takeaways from Rishi Sunak's speech
Chancellor Rishi Sunak has announced a fresh package of measures in his Spring Statement to combat the cost-of-living crisis affecting UK households, amid mounting pressure to ease the strain.
Speaking in the House of Commons on Wednesday, the finance minister said he was committed to building a “stronger, more secure economy for the United Kingdom”, pledging to help the hardest-hit families in Britain.
Sunak announced a cut to fuel duty to tackle soaring prices at petrol pumps after Russia’s invasion of Ukraine sent the cost even higher.
He revealed a temporary 5p per litre reduction until March 2023, the biggest rate cut on record. The move comes into effect at 6pm on Wednesday.
Howard Cox, founder of the FairFuelUK Campaign welcomed the news: "It would be churlish not to be thankful to the chancellor in cutting fuel duty by 5p for 12 months. Well done Rishi. Our relentless campaigning has been fruitful. It will give some respite to millions of motorists, that have had and continue to have no choice but to drive."
However, shadow chancellor Rachel Reeves said that households needed more than 5p to tackle the spiralling cost crisis.
“Even a 5p reduction in fuel duty will only reduce filling up the car with petrol by £2. So, I don't think that really rises to the scale of the challenge," she said.
Read more: Can Rishi Sunak rescue the UK from a cost of living crisis?
Sunak also scrapped VAT on energy efficiency measures such as solar panels, heat pumps and insulation installed for five years, while doubling the Household Support Fund to £1bn from April.
He is putting another £500m into the household support fund, which allows councils to help poorer families. This could cut the cost of having a solar panel installed by £1,000.
The finance minister highlighted that he could make the changes as a result of Brexit.
Sunak added during his Spring Statement that the Conservative government was committed to cutting taxes by the end of this parliament, announcing a new tax plan.
“The new plan will build a strong economy by reforming taxes in three ways; it will help families; create the conditions for higher growth; and share the proceeds of growth fairly,” he said.
Watch: Inflation hits new 30-year high as chancellor Rishi Sunak expected to ease cost of living crisis
He announced a £6bn plan to lift the national insurance threshold by £3,000. This means it will be equivalent to the income tax threshold, amounting to a tax cut for people of £330 a year.
"From this July, people will be able to earn £12,570 a year without paying a single penny of income tax or national insurance," he said. "That’s a £6bn personal tax cut for 30 million people across the United Kingdom. It is the single biggest tax cut for a decade."
Some 70% of workers will have their taxes cut by more than they pay for the new levy.
He further committed to cutting the basic rate of income tax by 1p in the pound by 2024, and said that the Employment Allowance will increase to £5,000 — a tax cut worth up to £1,000 for half a million small businesses.
Ben Pollard, founder and chief executive of Cushon, said: “Raising the national insurance threshold will provide at least some much-needed respite during the cost of living crisis especially for the lowest paid.
However, Paul Johnson, head of the IFS, tweeted his disappointment at some of the measures.
"What is the possible justification for cutting income tax rate while raising NI rate? Drives further wedge between taxation of unearned income and earned income. Yet again benefits pensioners and those living off rents at expense of workers," he said.
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
It comes as the Office for Budget Responsibility (OBR) forecasted UK growth at 3.8% this year, followed by 1.8% in 2023, 2.1% in 2024, 1.8% in 2025 and 1.7% in 2026, the chancellor revealed.
The UK's underlying debt is expected to fall from 83.5% of GDP in the next financial year to 79.8% in 2026-27. But the OBR has said the UK's fiscal headroom could be “wiped out by relatively small changes to the economic outlook”.
The UK Spring Statement is usually only meant to be an economic update, rather than a full budget, however, soaring energy, food and petrol costs, the war in Ukraine, and runaway inflation have made it difficult to ignore.
Earlier on Wednesday, data from the Office for National Statistics (ONS) revealed that the annual rate of inflation rose to 6.2% in the year to February, its highest level since March 1992.
This was above January’s previous 30-year high of 5.5%, with the biggest contributions coming from soaring energy, fuel and food prices, while transport saw the highest rate for the second consecutive month.
Jack Leslie, senior economist at the Resolution Foundation: “Another sharp rise in inflation last month offers a foretaste of the huge income squeeze coming this year, with inflation likely to hit at least 8% this spring — which could be the highest it’s been in 40 years — along with a second spike this autumn.
“This prolonged period of high inflation — which millions of people have simply never experienced before — is a complete disaster for living standards.
Read more: UK inflation hits 6.2% ahead of Rishi Sunak's Spring Statement
In his speech Sunak also pointed to the war in Ukraine, saying that a strong economy is vital in tackling Moscow’s invasion.
“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. So when I talk about security, yes — I mean responding to the war in Ukraine,” he said.
“But I also mean the security of a faster-growing economy, the security of more resilient public finances, and security for working families as we help with the cost of living.”
He added that UK sanctions against Russia are unprecedented, and that Britain was proud to stand with Ukraine.
