Rishi Sunak Sets Out UK’s Spring Budget Amid High Inflation

Chancellor of the Exchequer Rishi Sunak tabled the UK’s Spring Statement, or the country’s one of two annual fiscal statements, on Wednesday amid high inflation and price rises and announced measures such as a drop in the basic rate of income tax, a cut in fuel duty and doubling support for vulnerable households. The Indian-origin finance minister had promised a Budget which builds a “stronger, more secure economy” and also supports working families who are coping with a cost of living crisis due to high fuel and energy costs, exacerbated by the pandemic and the Russia-Ukraine conflict. “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,” Sunak told the House of Commons. “Cutting taxes means people have immediate help with the rising cost of living, businesses have better conditions to invest and grow tomorrow, and people keep more of what they earn for years to come,” he said.

The minister said that to ensure more people can keep more of what they earn, the basic rate of income tax will be cut from 20 pence to 19 pence from 2024. It is dubbed a 5 billion pounds tax cut worth 175 pounds on average for 30 million people and the first cut to the basic rate in 16 years. “For only the second time in 20 years, fuel duty will be cut, not by one, not even by two but by five pence per litre, the biggest cut to all fuel duty rates ever,” Sunak said, with reference to his other major announcement. The cut, which will have a direct impact on the cost of petrol and diesel, will be in force from Wednesday evening and remain in place for 12 months until March 2023. To address the cost of living crisis, the income threshold before which National Insurance (NI) tax is to be paid would be raised – saving a typical employee over 330 pounds in the year from July. An extra 500 million pounds has also been granted towards the support available to local councils to support poor families under the Household Support Fund, doubling it to 1 billion pounds. Sunak also announced a slash in VAT on energy efficiency products to make energy efficiency cheaper and set out help for businesses to boost investment, innovation, and growth – including a 1,000 pounds increase to Employment Allowance to benefit around half a million smaller firms.

Delivering the mini-Budget, the Chancellor made clear that the UK’s sanctions against Russia will not be cost-free for Britain because the global supply chain issues are driving up the cost of living for families across the UK. However, he stressed that extra support could be provided because of the UK’s strong economy. “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,” said Sunak. “So, when I talk about security, yes – I mean responding to the war in Ukraine. 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 said. The immediate help for people with the cost of living and support for businesses comes as part of a wider Tax Plan announced by the minister, intended to create better conditions for growth and share proceeds from growth more fairly. Sunak had been under pressure for targeted measures as prices in the country have risen by 6.2 per cent over the past year, the fastest for 30 years.

While the Spring Statement is not associated with the major tax and spending announcements of the Autumn Statement as its purpose is to present an updated forecast of the economy, some key announcements were expected due to the high inflationary pressures. “With people across the UK facing growing pressures exacerbated by the war in Ukraine, Sunak will pledge to continue to ‘stand by’ hard-working families and outline further plans to help with the rising cost of living,” the UK’s Treasury department said ahead of the ministerial statement in the House of Commons. “Alongside Britain continuing its ‘unwavering’ support to Ukraine, he will add that a stronger economy is vital in responding to the threat of [Russian] President (Vladimir) Putin and that freedom and democracy remain the best route to peace, prosperity, and happiness,” the Treasury said. Despite pressures from within his own Conservative Party, Sunak had ruled out scrapping an increase announced to the National Insurance (NI) tax last year. The Opposition Labour Party criticised the statement for failing to introduce a windfall tax on oil and gas companies and not scrapping the NI tax rise completely. "The truth is people can no longer afford the Conservatives - working families can't, pensioners can't," said Rachel Reeves, Labour’s shadow chancellor, in response to the statement. 

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