Rishi Sunak will unveil his Spring Statement on Wednesday and he is expected to announce a number of measures to ease the cost of living crisis.
The March statement is not meant to be marked by major policy announcements but as many of the worst off in British society face an appalling “eat or heat” dilemma, this year’s statement has evolved beyond its usual parameters.
Disposable incomes are expected to be squeezed more heavily than at any time in 30 years, with the Bank of England predicting inflation will rise above eight per cent this spring and energy bills are set to rise to an annual average of £3,000 from October.
Mr Sunak’s statement will be delivered to the House of Commons on Wednesday 23 March, and will see him respond to the Office for Budget Responsibility’s economic forecast for spending, debt, GDP, employment and wages.
Here i takes a look at what options are on the table to the Chancellor to help ease the spiralling cost of living crisis and how likely he is to announce each of the measures this week.
Cut fuel duty – 4/5
The group wrote an open letter to Mr Sunak calling for a cut in fuel duty or VAT to ease prices at the pumps.
According to the RAC’s Fuel Watch, which tracks prices at supermarket and independent retailers across the UK and provides a national average, petrol is currently at 165.89 pence per litre and diesel is at 176.76ppl.
Experts warned this week that prices could rise to £2.40 a litre, an astronomical increase for motorists.
On Sunday, Mr Sunak hinted a fuel duty cut could be on the way, as he recognised that rising prices at the pumps are “one of the biggest bills people face”.
He told Sky News’ Sophy Ridge on Sunday programme: “Obviously I can’t comment on specific things (that will be in the spring statement).
“But what I would say, I understand that… I have a rural constituency, people are incredibly reliant on their cars and this is one of the biggest bills that people face, watching it go up.
“We’re all seeing that, when we’re filling up our cars. I get that, that’s why we’ve frozen fuel duty already.”
Labour has said it would back a fuel duty cut but argued that ministers should be considering more radical measures to guard against cost of living demands.
Shadow chancellor Rachel Reeves said a 5p cut in fuel duty would “only reduce filling up the car with petrol by £2”.
Changes to National Insurance – 1/5
Both Boris Johnson and the Chancellor have vowed to go ahead with their manifesto-breaking raise to National Insurance contributions (NICs).
From April, NICs will rise by 1.25 percentage points for workers and employees to tackle the Covid-induced NHS backlog and reform social care.
The rise will tax the average worker £250 a year, and raise costs for firms which hire staff.
In January, the pair made a firm commitment to go ahead with the tax rise – despite coming under pressure to scrap the hike amid the cost of living crisis.
Mr Sunak appears to double down on that commitment, and told the BBC: “I do believe they are the right and responsible decisions for the long-term economic security of this country, we’ve done it in a fair way, and going forward my priority is to cut tax and put money back in people’s pockets.”
He added: “What I’d say to people, I know it’s difficult, but you can be reassured that every penny you pay of this levy, unlike any other tax, goes directly to the thing that you care most about which is the NHS.”
But Mr Sunak could decide to row back on the policy – something that would be widely welcomed from across the House, especially fiscally conservative Tory backbenchers.
To avoid a humiliating U-turn, however, the Chancellor could decide to delay the implementation of the policy.
Or Mr Sunak could increase the threshold for paying NICs.
From the 2022/23 financial year you start paying National Insurance when you earn more than £190 a week – up from £184 in the previous year.
The Chancellor could increase this tax-free threshold further.
But the most likely outcome is that Mr Sunak goes ahead with the planned NICs increase but mitigates the impact with other measures.
Increase energy bill rebate – 3/5
Mr Sunak has already announced plans to offer financial support to UK households through a one-off £150 council tax rebate to households in bands A-D and a repayable £200 saving on energy bills this year.
He could decide to increase the council tax rebate or give more time for households to pay back the £200 “loan” – that is due to be repaid over the next four years.
The amount on loan could also be increased.
Mr Sunak, asked on the BBC’s Sunday Morning programme whether he is prepared to step in and keep offering aid on energy bills over a sustained period, said: “Of course I am, and people can judge me by my actions over the past two years.
“Without question, this is people’s number one priority – I get that, and I know how difficult it is when you are working hard and seeing the price of everything go up every day, every week.”
This suggests the Chancellor is willing to do more to help households manage rising energy bills.
Cut income tax – 2/5
Cutting income tax is understood to be one of the measures being considered by the Chancellor.
Speaking at the Spring Conservative conference in Blackpool, Mr Sunak vowed not to raise taxes any further and told activists that “my priority going forward is to cut taxes”.
Alternatively, the Chancellor could reverse his earlier decision to freeze income tax band thresholds for four more years, from 2022/23 to 2025/25.
The move means the personal allowance will not change alongside inflation – which is currently at a 30-year high of 5.5 per cent.
But Mr Sunak could renege on this commitment and change the amount people start paying tax, which is currently set at £12.570.
The basic rate of 20 per cent then kicks in on earnings between £12,571 and £50,270. Earnings between £50,271 to £150,000 are charged at 40 percent, with income over £150,000 taxed at 45 per cent.
Increase benefits – 3/5
Mr Sunak could decide to raise benefit payments in line with inflation, which is expected to soar to eight per cent this spring.
Benefits such as Universal Credit is currently only due to go up by 3.1 per cent in April – significantly lower than the rate on inflation.
Changes to the benefit system would be costly, at around £9bn, but would make a huge difference to the most vulnerable in society.
Additionally, the Chancellor could decide to reverse the Government’s hugely unpopular decision to scrap the £20 a month Universal Credit uplift.
Having been introduced in March 2020 to help people struggling with the impact of the pandemic, Mr Sunak removed the uplift from October 2021.
Another option available is to reduce the Universal Credit taper rate – the amount payments are reduced when a claimant is earning.
Mr Sunak already reduced this in his Autumn Budget, from 63 per cent to 55 per cent, but he could go further to help people pay their household bills.
A further eight-point reduction in the taper rate would give 1.9 million working households an extra £1,000.
The Chancellor could also change the £50,000 child benefit threshold – at which money is taxed as too many basic ratepayers are now being caught in its net.
That would be worth £324 a year to a family with two children.