Spring statement 2022: RECAP as Rishi Sunak cuts fuel duty and VAT on energy saving devices
But he acknowledged the impact of inflation, which is at a 30-year high, and the global economic uncertainty caused by Vladimir Putin’s invasion of Ukraine.
The Office for Budget Responsibility (OBR) downgraded growth in gross domestic product – a measure of the size of the economy – from the 6% forecast for this year at the time of the Budget in October to just 3.8%.
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Mr Sunak said “it is too early to know the full impact of the Ukraine war on the UK economy” but the OBR acknowledged there was “unusually high uncertainty” around the economic outlook.
The cost-of-living crisis driven by rising fuel and energy prices was set to be exacerbated in April by the 1.25 percentage point hike in national insurance to fund the NHS and social care.
But Mr Sunak unveiled a £6 billion plan to increase the threshold at which people start paying national insurance contributions (NICs) by £3,000 to £12,570 from July.
Mr Sunak said it was “a £6 billion personal tax cut for 30 million people across the United Kingdom, a tax cut for employees worth over £330 a year”.
Mr Sunak said around 70% of workers would have their tax cut by more than the increase coming in April.
And he promised further support in 2024 with a pledge to cut the basic rate of income tax from 20p in the pound to 19 – “a £5 billion tax cut for over 30 million people”.
Rising energy, goods and food prices helped push inflation to increase 6.2% in the 12 months to February, Office for National Statistics (ONS) figures revealed on Wednesday morning, hours before Mr Sunak’s speech to the Commons.
You can follow live updates from the Spring Statement in our live blog.
Spring statement 2022: Live updates on UK Spring Statement from Rishi Sunak
Rachel Reeves said the Government’s plan did nothing for people on the edge of fuel poverty or for pensioners who are facing a “real-terms cut” to their income.
Rachel Reeves adds “It is shameful that he doesn’t, because when Martin Lewis predicts that 10 million people could be pushed into fuel poverty the Chancellor should sit up and listen.”
She added: “We know that pensions and social security are not going to keep up with inflation. Pensioners and those on social security are being given a real-terms cut in their incomes.
“So, what analysis has the Chancellor done of the impact of benefits being up-rated by less than inflation? How many more children and pensioners will drift into poverty because of … this Government?”
Rachel Reeves hits out at Rishi Sunak saying “inflation is back” and dubs the chancellor “Ted Heath with an Instagram account”.
Here are the main points from Chancellor Rishi Sunak’s spring statement:
– Mr Sunak said by the end of the current Parliament in 2024, the Government would cut the basic rate of income tax from 20p in the pound to 19p which he said was “fully costed and fully paid for in the plans announced today”.
– The Chancellor said he would “stand by” households, and announced fuel duty would be cut by 5p per litre for a year up until March 2023.
– Mr Sunak said that “thanks to Brexit” he was able to remove VAT on materials such as solar panels, heat pumps or insulation to help bring down energy costs, as well as on wind and water turbines. He told the Commons: “We will abolish all the red tape imposed on us by the EU.”
– He also said he is doubling the Household Support Fund to £1 billion “to do more to help our most vulnerable households with rising costs” with “targeted support”.
– The Chancellor said he would publish a “tax plan” as he announced the national insurance contributions (Nics) threshold would rise by £3,000 “to fully equalise the Nics and income tax thresholds not incrementally over many years but in one go this year”.
Britain will be hit by a double whammy of sky-high inflation and slower growth as the Ukraine conflict compounds the cost-of-living crisis, according to the UK fiscal watchdog.
The Office for Budget Responsibility (OBR) predicted UK inflation is now set to average 7.4% this year – the highest since August 1991 – as the Ukraine crisis will further disrupt supply chains and send energy bills soaring.
It had previously forecast Consumer Prices Index inflation to average 4% in 2022.
Rishi Sunak has said that as a result of the increase in national insurance thresholds, 70% of workers will pay less tax, even accounting for the levy.
Responding to Rachel Reeves’ comments on tax, the Chancellor told the Commons: “The increase in national insurance thresholds to fully equalise them is a £6 billion tax cut for 30 million UK workers.
“It is the largest increase in thresholds ever, the biggest personal tax cut in a decade and it is worth £330 for those workers and it means, and this is the part that I don’t know if she has realised because she talked about the levy and making sure that we direct our policy at those who need our help, there’s a reason the independent Institute for Fiscal Studies called this the best way to help low and middle earners through the tax system.
“That is because 70% of workers will pay less tax, even accounting for the levy.
“It is more generous than the policy she is advocating and combined with the other tax cuts we have announced today, as I said, this plan represents the biggest cut, the biggest net cut to personal taxes in a quarter of a century.”
Mr Sunak concluded: “Now, no Government gets every call right, we learn from our mistakes, we strive to improve. But even if they won’t admit it, members opposite will recognise this day as an achievement which we all can celebrate.
“I’ve said it before to the party opposite, and I’ll say it again: there is a fine line between reasonable criticism and political opportunism, and in my experience the British people can always tell the difference.”
Households are facing the biggest fall in living standards in any single financial year since records began in the 1950s.
Labour deputy leader Angela Rayner tweeted: “The Chancellor hasn’t got a clue. He lives in another world.
“He’s left households and businesses to fend for themselves in the middle of a devastating cost of living crisis.
“The Office for Budget Responsibility knows this is the biggest hit to household incomes on record.”