Spring statement 2022: Rishi Sunak under fire for not doing enough as living standards set for record fall

Rishi Sunak has come under fire for not doing enough to tackle the biggest fall in living standards since records began as he announced a tax cut for millions of workers and moved to immediately reduce fuel duty.

The Chancellor unveiled a package of measures as he delivered his Spring Budget in Westminster, including shielding lower earners from the impact of the coming national insurance hike.

However, critics called the measures "woeful", while the Institute for Fiscal Studies said he had failed to help the “very poorest”.

Chancellor Rishi Sunak

Mr Sunak cut 5p off fuel duty and promised to cut income tax in England, Wales and Northern Ireland by 1p in 2024 – a move that could put the SNP under huge pressure to make changes to Scotland’s devolved regime.

But economic growth forecasts were downgraded and inflation is set to reach its highest level for 40 years, leading to household disposable incomes falling by 2.2 per cent per person.

The Office for Budget Responsibility (OBR) downgraded growth in gross domestic product – a measure of the size of the economy – from the 6 per cent forecast for this year at the time of the Budget in October to just 3.8 per cent.

Inflation hit 6.2 per cent in February, and Mr Sunak said it was forecast to average 7.4 per cent this year due to “disruptions to global supply chains and energy markets, combined with the economic response to [Vladimir] Putin’s aggression”.

The OBR said inflation – combined with rising taxes – will “weigh heavily on living standards in the coming 12 months”.

It said: “The rise in inflation to a 40-year high this year is expected to reduce real household disposable incomes on a per-person basis by 2.2 per cent in 2022/23, the biggest fall in living standards in any single financial year since ONS [Office for National Statistics] records began in 1956/57.”

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 said the threshold at which people start paying national insurance contributions (NICs) will increase by £3,000 to £12,570 from July.

The Treasury said this will benefit 2.4 million working people in Scotland, with a typical employee saving more than £330 a year.

The Chancellor also pledged to cut the basic rate of income tax from 20p in the pound to 19p in 2024.

Income tax is devolved and Scotland already has a 19p starter rate. However, it only applies to taxable income between £12,571 to £14,667, while England’s basic rate covers earnings up to £50,270.

The Chartered Institute of Taxation warned Mr Sunak's move, which would result in an extra £350 million for Scotland in 2024, could lead to further future divergence between the income tax regimes north and south of the border.

Those earning between £43,663 and £50,000 in Scotland would be hit by an income tax rate of 41 per cent, compared to 19 per cent down south.

Scottish Conservative finance spokeswoman Liz Smith said: “The SNP must now agree to match Rishi Sunak’s announcement, which will put more money in the pocket of every single taxpayer.”

Despite the measures announced by Mr Sunak, the overall burden of taxes is set to reach the highest level since the late 1940s by 2026/27.

Elsewhere, the Chancellor announced further measures to help with the cost-of-living crisis, including removing VAT on energy-saving materials such as solar panels, heat pumps and roof insulation for five years.

Councils in England will get an extra £500m for the Household Support Fund, with Scotland to receive £41m of extra funding as a result.

A tax relief scheme for small businesses was also made more generous.

Mr Sunak said: “This statement puts billions back into the pockets of people across the UK and delivers the biggest net cut to personal taxes in over a quarter of a century.

“Like our actions against Russia, I have been able to do this because of our strong economy and the difficult, but responsible decisions I have had to make to rebuild our finances following the pandemic.”

SNP finance decretary Kate Forbes said the Chancellor’s statement lacked sufficient "lifeline support that could prevent households facing fuel poverty".

She said: "Most powers relating to the energy markets remain reserved and Scottish ministers have repeatedly called for the UK Government to urgently take further action to support households, including a reduction in VAT on household energy bills and support for those on low incomes.

“We are doing all we can to tackle the cost-of-living crisis, including doubling the Scottish Child Payment from £10 per week per eligible child to £20 next month.

"The UK Government should have followed our lead and matched the 6 per cent uprate on social security benefits which the Scottish Government is adding to eight of the benefits we deliver."

She added: “On taxation, we have already acted to introduce a 19 per cent starter rate of income tax below the basic rate, in line with our commitment to progressive taxation, which makes Scotland the fairest taxed part of the UK.

"We will continue to take that approach when we set taxation policy in future budgets.”

Labour’s shadow chancellor Rachel Reeves accused Mr Sunak of “making a historic mistake” by not scrapping the national insurance rise.

She said the Chancellor should instead have brought forward a windfall tax on oil and gas companies.

She said: “Today was the day to scrap the tax rise on jobs, today was the day to bring forward a windfall tax, today was the day for the Chancellor to set out a plan to support British businesses.

“But, on the basis of the statement today and the misguided choices of this Chancellor, families and businesses will from now on endure significant hardship as a result.”

Torsten Bell, chief executive of the Resolution Foundation living standards think-tank, said: “The Chancellor announced a bigger package of measures than expected, but it was a badly designed one with almost no new support for the poorest households.

“Higher earners will be hardest hit by tax rises, but it makes no sense to raise national insurance while cutting income tax – 21st-century Britain doesn’t need to do more to make things harder for workers, and easier for landlords.”

Citizens Advice Scotland chief executive Derek Mitchell said: "Some of the measures announced today by the Chancellor will provide some respite. However, in reality it won’t be enough to halt a rising tide of poverty that could sweep millions across the UK into debt and destitution.

"Put simply much more needs to be done than has been announced today."

The Scottish Chambers of Commerce welcomed some of the measures, but added: “The Chancellor should have gone further to help Scotland’s businesses recover.”