Spring Statement: Rishi Sunak outlines plan for cutting taxes
The Chancellor yesterday slashed 5p off a litre of fuel and wiped £6billion from the tax bills of millions of lower-paid workers by raising the National Insurance threshold. Telling voters the Government is “on their side”, in his Spring Statement he also axed VAT on green house improvements – and promised to cut a penny off income tax, from April 2024. But his handouts came as analysts predicted rampant inflation and downgraded growth over the next two years.
Mr Sunak told MPs: “My tax plan delivers the biggest net cut to personal taxes in over a quarter of a century.”
The Household Support fund was doubled, with an extra £500million for local councils to help the most vulnerable through the cost-of-living squeeze.
In a move made possible by the UK’s departure from the EU, the Chancellor scrapped VAT on some energy-saving products.
“Thanks to Brexit, we are no longer constrained by EU law, so I can announce that for the next five years, homeowners having materials such as solar panels, heat pumps and insulation installed will no longer pay five percent VAT; they will pay zero,” said Mr Sunak, announcing the tax cut worth a total of £280million over the next five years.
He also offered support for businesses by increasing employment allowance from £4,000 to £5,000, letting small businesses reduce their National Insurance payments in a measure worth around a total of £500million a year.
Tory MPs were surprised when the Chancellor went further than expected in easing the impact of the National Insurance hike due next week.
His threshold increase from £9,880 a year to £12,500 will save taxpayers around £6billion a year.
Treasury officials said a typical employee will save around £330 a year. An estimated 70 percent of employees should see their NI contributions fall.
His threshold increase from £9,880 a year to £12,500 will save taxpayers around £6billion a year
But he rejected demands from Tory backbenchers for the cancellation of the 1.25 percent National Insurance rise being introduced to raise extra funds for the NHS and adult social care system.
“When I said the Conservatives were the party of public services—the party of the NHS—I did not just mean when it was easy; it is a total commitment.
“So it is right that the health and care levy stays, but a long-term funding solution for the NHS and social care is not incompatible with reducing taxes on working families,” the Chancellor said.
Mr Sunak’s 12-month petrol-and-diesel duty cut from 6pm last night, the largest one-off reduction in the levy ever, will save motorists a total of around £5billion.
His income tax cut is due to save taxpayers a further £5billion a year from April 2024.
He said the tax cut will be deliverable because official forecasts predicted inflation will be back under control, Government debt will have fallen and the economy will be growing.
“I can confirm that before the end of this Parliament, in 2024, for the first time in 16 years, the basic rate of income tax will be cut from 20p to 19p in the pound – a tax cut for workers, for pensioners, and for savers, and a £5 billion tax cut for 30 million people,” the Chancellor told MPs.
“Let me be clear with the House: it is fully costed and fully paid for in the plans announced today.
Mr Sunak said his measures showed the Government would ‘stand by’ hard-working households
“Last year, I told the House that I would cut taxes for hard-working families, but I would do so in a responsible and sustainable way, and today I am delivering on that promise.”
Mr Sunak said his measures showed the Government would “stand by” hard-working households.
“Today’s statement builds a stronger, more secure economy for the United Kingdom,” he said.
Mr Sunak admitted ministers had had to make “difficult decisions” during the covid pandemic.
Forecasts published by the Office for Budget Responsibility yesterday showed the Government’s response to the pandemic had left the overall tax burden heading to the highest level since the late 1940s.
Vladimir Putin’s war in Ukraine had created “unusually high uncertainty” in the world economy and would have an impact on UK growth, the financial watchdog.
It also warned that prices are set to surge further with inflation predicted to average 7.4 percent this year.
He said his “overarching ambition was to reduce taxes by the end of this Parliament” and claimed the Government’s “responsible” stewardship of the economy had left his leeway to begin reducing taxes.
Mr Sunak said: “Cutting taxes is not easy; it requires hard work, prioritisation, and willingness to make difficult and often unpopular arguments elsewhere.
Cutting taxes is not easy; it requires hard work, prioritisation, and willingness to make difficult and often unpopular arguments elsewhere
“It is only because this Government has been prepared to make difficult but responsible choices in order to fix our public finances that I can stand here and tell this House not only that taxes are being cut, but that debt is also falling while public spending is increasing. That does not happen by accident.
“We can deliver for the British people today and into the future.”
At a Cabinet meeting in Downing Street ahead of his statement, he told fellow ministers: “Today we will show the British voters that we are on their side.”
Mr Sunak’s 12-month petrol-and-diesel duty cut from 6pm last night, the largest one-off reduction in the levy, will save motorists a total of around £2.4billion.
The Chancellor said the savings would be worth £5billion if the effect of the fuel duty freeze announced in his autumn Budget is taken into account.
Mr Sunak later took questions about his spring statement from listeners to a call in on LBC.
The Chancellor insisted he was “working day and night” to help people struggling with the soaring cost of living. He added: “And I’m making sure that I’m on people’s side and I’d say judge me by my actions.”
Asked if he was embarrassed to call himself a tax cutting Chancellor while the tax burden overall was increasing on his watch, he replied: “I’m also the Chancellor that had to deal with a once in a century pandemic. I’m also the Chancellor that experienced the biggest economic shock to the country for 350 years, saw borrowing spiral to levels that we haven’t seen since World War Two, I’m the Chancellor that had to introduce furlough.
“I have to deal with the world as it is, not as the way I would like it to be.”
Meanwhile, Treasury Minister Simon Clarke said raising public sector pay in line with inflation would be “wildly unrealistic”.
“We have a wider responsibility to all taxpayers to make sure that we manage the public finances responsibly, and everybody in both the public and the private sector is going to have to pay their full role in helping the country through this crisis,” he told Peston on ITV.
“It’s really important, clearly, that pay restraint is observed across the public sector. We’re not freezing public sector pay – there will be pay increases – but we’re not in a position where we can start paying out eight, ten, 12 percent, and it would be wildly unrealistic to expect us to do that.”
Rishi builds suspense for tax vanishing act
RISHI Sunak strived to come across as a tax-cutter at heart as he presented his Spring Statement on the economy.
Many Tory MPs were left disgruntled by the eye-watering emergency tax rises he has imposed over the last two years. The Chancellor’s speech did everything possible to persuade them he is the man to reverse that trend.
“Watch your back, Boris,” a Labour MP quipped as the ambitious Chancellor rose to his feet, leaving the Prime Minister quaking with laughter.
National insurance rate for UK employees
Ignoring catcalls from the opposition, Mr Sunak launched into his rapid-fire delivery, focusing on promises of “security” in an uncertain world.
He repeatedly boasted of his tax-cutting objective and said his “overarching ambition” was to lower levies by the next general election, expected in 2024.
His head whipped from side to side as he spoke. He seemed to be checking Tory ranks for signs of approval.
“Only the Conservatives can be trusted with taxpayers’ money,” he said.
To prove his point, the Chancellor pulled off a little budgetary trickery.
He shaved a few billion pounds off the National Insurance hike taxpayers are bracing themselves for and then presented it as a tax cut.
It felt like a mugger leaving his victim with the bus fare home.
Mr Sunak further sweetened the mix with a promise to wipe 1p off income tax in a couple of years’ time. Unfortunately, forecasts from the Office of Budget Responsibility predict that most Britons will suffer a nasty drop in living standards before that tax cut arrives. Mr Sunak’s keynote speeches are always refreshingly straightforward, avoiding the laboured jokes and gimmicks that many of his predecessors favoured.
Yesterday’s effort was no different – delivered with his usual brisk and assured style.
In the chamber at least, it went down well with Tory MPs, who drowned out the Chancellor’s peroration with enthusiastic cheers.
Shadow chancellor Rachel Reeves, inset, delivered a withering response from Labour, taking Mr Sunak to task for his lengthy record of monster tax rises.
She even made the startling claim that Labour would deliver a “real Brexit dividend” if she ever takes charge at the Treasury.
But her attack floundered with a lame gag, as she mocked social media-savvy Mr Sunak as “Ted Heath – with an Instagram account”.
For all his faults, Heath did get to be prime minister.
If Mr Sunak does manage to deliver some tax-cutting magic before the next election, he just might do the same.
Change in UK real household disposable income
Mini budget… key points
Fuel duty is cut by 5p per litre, for a year, from 6pm last night.
VAT on household green energy equipment, like solar panels and heat pumps,is scrapped.
The Household Support Fund, a grant for councils to give to the most vulnerable households, is doubled to £1billion
The National Insurance threshold – the salary at which NI starts to be paid – is increased by £3,000 to £12,570.
Sunak has pledged to bring in a cut to income tax, from 20p to 19p, before the next general election in 2024.
Employment Allowance will be lifted from £4,000 to £5,000 on April 6 to help small businesses. The allowance is a tax relief scheme that allows firms to lower their NI bills.
Business rates relief on green technology is to be brought forward by a year to April.
National insurance threshold for UK employees
Blow to living standards ‘worst for seven decades’
FAMILIES will be clobbered by the biggest hit to their living standards since the 1950s, the UK fiscal watchdog has said, writes Martyn Brown.
Household spending will fall dramatically in the next year due to sky-high inflation and slower economic growth, according to the Office for Budget Responsibility (OBR).
The crisis represents a bigger hit than families suffered during the pandemic or the 2008 financial meltdown.
It is also a worse blow than the recessions of the 1990s or 1980s, and the oil shocks of the 1970s.
In a bleak assessment, the OBR slashed its economic growth outlook and predicted inflation could reach 8.7 percent later this year – the highest level for 40 years.
It is now forecasting gross domestic product (GDP) to rise by 3.8 percent in 2022, down from its six percent forecast.
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The OBR said real household disposable incomes will plunge by 2.2 percent per person in 2022-23, the largest fall since official records began in 1956-57, and won’t recover until 2024. And it warned:
“The uncertain course of the invasion of Ukraine and international sanctions brings with it the prospect that energy prices could rise further than markets (and therefore our forecasts) currently assume… driving inflation close to double digits and GDP 0.8 percent lower in the near term.”
Mr Sunak admitted the OBR forecasts do not take into account the full impact of the war in Ukraine. He said: “We should be prepared for the economy to worsen.”
The OBR forecasts that interest payments on UK debt will rocket to £83billion in 2022-23 due to soaring inflation and rising interest rates, the highest on record.
Borrowing is also set to soar to £99.1billion in 2022-23, the OBR warned. However, this will fall to £31.6billion by 2026-27.
Mr Sunak said: “By 2024, the OBR expect inflation to be back under control, debt falling sustainably, and the economy growing.”