Rishi Sunak warned of a ‘challenging’ outlook for the economy today as he braces to cut fuel duty and ease the impact of National Insurance hikes in his mini-Budget today.
Briefing Cabinet ahead of his Spring Statement, the Chancellor insisted he is ready to help hard-pressed families after Inflation came in above expectations again.
But he also cautioned that the government must take a ‘responsible and sustainable approach’ rather than simply turning on the spending taps.
The 6.2 per cent CPI figure for February is more than three times the Bank of England‘s target, and a peak not seen since 1992. But there are fears it will go even higher, possibly to double digits.
What could Rishi do to ease pressure on families in the Spring Statement?
The Treasury has been playing down the scale of the Spring Statement, but Rishi Sunak has been given some much-needed wriggle-room to ease the cost-of-living crisis by UK plc’s better-than-expected performance.
Strong tax receipts have helped keep the government’s deficit around £30billion lower than the OBR expected at the time of the October Budget. Meanwhile, his existing plans to freeze tax thresholds are set to bring in around £12billion more than anticipated due to soaring inflation dragging people deeper into the tax system.
Here are some of the Chancellor’s options:
Ditching National Insurance increase: £12billion – Unlikely
The Health and Social Care Levy has been dubbed ‘the worst timed tax rise in history’. Delaying it would be a one-off hit to the finances, which experts say would be affordable. But Mr Sunak has stubbornly defended the policy and will fear if it doesn’t go ahead this April it never will closer to an election.
Cut fuel duty: £3bn? – Very likely
Under huge pressure from Tory MPs, the Chancellor has been considering a reduction of about 5p per litre in order to counter record prices at the pumps. Any cut is likely to be temporary, lasting six months or so.
Raise national insurance thresholds. £20bn? – Likely
The starting point for paying NI is just £9,568 – well below the £12,500 threshold for income tax. Treasury officials have examined the case for raising thresholds to cushion the blow of the NI increase. However, a big move would be eye-wateringly expensive, and would benefit the wealthiest as well as the poorest.
More energy bill help: £?bn – Highly unlikely
The Chancellor has offered a £150 council tax discount, coupled with the promise of a £200 ‘loan’ to help with energy bills this autumn. He is under intense pressure to do more, such as converting the loan into a grant or increasing its size. But the Treasury has insisted there will be no move in the Spring Statement as the cap on energy bills does not change until October.
Concerns have been raised that key goods such as chicken and wheat will see particular pressure due to global turmoil.
Mr Sunak has been fending off renewed calls to spike the £12billion National Insurance hike in the mini-Budget, despite the better-than-anticipated performance of UK plc leaving him with up to £50billion to play with.
In the Commons at lunchtime, Mr Sunak will stress the need to build ‘a stronger, more secure economy’ and keep the public finances on track.
‘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,’ he is expected to say.
‘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 centrepiece of the package is likely to be a big reduction in fuel duty, after pump prices reached eye-watering levels amid the standoff with Russia.
The threshold at which NI starts being paid could also be increased to offset the losses from the new health and social care levy – although it is unlikely to be enough for senior Tories and businesses who have been pleading for the levy to be dropped altogether.
However, experts have warned that there is a limit to how much Mr Sunak can do to help Britons because the UK is simply ‘worse off’ after being hammered by the pandemic.
RPI inflation – which is used to calculate interest rates for much of the government’s massive £2.3trillion debt mountain – was 8.2 per cent in February in another sign of the threats Mr Sunak must balance.
In a grim summary this morning, Office for National Statistics Chief Economist Grant Fitzner said: ‘Inflation rose steeply in February as prices increased for a wide range of goods and services, for products as diverse as food to toys and games.
‘Clothing and footwear saw a return to traditional February price rises after last year’s falls when many shops were closed. Furniture and flooring also contributed to the rise in inflation as prices started to recover following new year sales.
‘The price of goods leaving UK factories has also been rising substantially and is now at its highest rate for 14 years.’
As the nation waits to hear how Mr Sunak will respond to the mounting crisis:
- The respected IFS think-tank has warned that there is a limit to what the government can do to ease the problems because Britain is fundamentally ‘worse off’ after the pandemic;
- The Treasury Select committee has cautioned that low-income households are particularly vulnerable and while sanctions against Russia were necessary they will also exacerbate the situation;
- The head of the Iceland supermarket chain has said some people are turning down potatoes at food banks because they cannot afford to cook them.
The headline CPI rate came in above expectations, underlining the pain being inflicted on families ahead of the Chancellor’s Spring Statement
CPi inflation has been soaring above the OBR’s previous forecast from October – with updated estimates today expected to make grim reading
Public finances figures yesterday showed that the Chancellor has some wriggle room as borrowing has come in lower than expected
Rishi Sunak emerged from No11 ahead of his Spring Statement today (right). Boris Johnson limbered up for the big even with a jog in Westminster
Because it is a Spring Statement rather than a full Budget, the Chancellor did not do the traditional pose with his team and Red Box in Downing Street
How much would a 5p cut in fuel duty save drivers?
What is fuel duty?
Fuel duty is levied at a rate of 57.95p per litre for petrol and diesel.
It has been frozen at that level since March 2011.
What about VAT?
VAT is added on top, at a rate of 20 per cent of the combined product price and duty.
What are the latest average pump prices?
The average cost of a litre of petrol at UK forecourts on Tuesday was 167.3p, while diesel was 179.7p, figures from data firm Experian Catalist show.
This is an increase of 18p per litre for petrol and 27p for diesel over the past month.
Why have prices reached record highs?
Oil prices surged immediately after Russia’s invasion of Ukraine due to supply fears, leading to a rise in wholesale costs.
Prices were already increasing as global economies recover from the coronavirus pandemic.
How much would I save if fuel duty is cut by 5p per litre?
The RAC calculated this would reduce the cost of filling a typical 55-litre family petrol car by around £3.
Despite alarm at the economic slowdown and rising interest payments on government debt, Mr Sunak will promise more help for millions of people who are set to be hit hardest by increasing prices.
The NI rise has been branded ‘the worst-timed tax rise in history’.
But official figures yesterday revealed tax revenues are pouring into the Treasury again as the economy recovers from Covid. VAT revenues hit an all-time high, as did takings for other taxes including stamp duty and inheritance tax.
That has helped slash government borrowing – which is likely to come in around £30billion less than forecast this year.
The wave of inflation is also estimated to have given Mr Sunak a £12billion windfall after his decision to freeze tax thresholds for the coming years. Millions of people will be dragged deeper into the tax system as a result.
Helen Dickinson, Chief Executive of the British Retail Consortium, said shops were so far ‘successfully managing to limit cost increases for many essential groceries’.
‘Many supermarkets have expanded their value ranges to support individuals and households on lower incomes. Nonetheless, with retailers struggling to absorb these higher costs, shop prices look set to rise in the coming months,’ she said.
‘The situation in Ukraine is undoubtedly exacerbating existing cost pressures in the supply chain – from increased energy costs to higher global commodity prices.
‘Many households will also face far higher energy bills and NI contributions from next Friday.’
Mr Sunak had hoped to move beyond huge one-off measures after he ramped up spending to soften the blow to Britain’s economy from the COVID-19 pandemic.
But the Bank of England’s prediction that inflation will soon surpass 8 per cent as energy costs spike has prompted calls for more action.
Sir Charlie Bean, who was in charge of economic forecasts at the Office for Budget Responsibility until December, said the improving picture left the Chancellor with substantial ‘wiggle room’ to help families struggling with soaring bills.
Education Secretary Nadhim Zahawi (left), universities minister Michelle Donelan (centre) and Lord Leader Baroness Evans were among the ministers at Cabinet this morning
Foreign Secretary Liz Truss (left) and Environment Secretary George Eustice (right) were at the Cabinet meeting to hear details of the Chancellor’s package
Chancellor Rishi Sunak runs through his Spring Statement speech in his offices in 11 Downing Street yesterday
He suggested Mr Sunak had somewhere between £25billion and £50billion ‘to play with’.
The Treasury says Mr Sunak will use today’s statement to ‘outline further plans to help with the rising cost of living’.
Mr Sunak, who originally planned to avoid any major new spending commitments, will say he is ready to ‘stand by’ hard-pressed families.
He is expected to make pledges totalling at least £10billion, including a temporary cut in fuel duty of up to 5p a litre, increases in national insurance thresholds and increases to working-age benefits.
But Mr Sunak is due to give a stark warning that economic turmoil caused by the war in Ukraine reinforces the case for repairing the public finances rather than spending all the windfall.
He said the challenge to the West posed by Russia would be met ‘not just in the arms and resources we send to Ukraine but in strengthening our economy here at home’.
Mr Sunak is on course to become one of the biggest tax-raising chancellors in history, with official forecasts predicting the tax burden will rise to 36.2 per cent of GDP over the next five years.
Speaking at the weekend, he bridled at the figures, pointing out that the massive cost of the pandemic had left him with no choice but to raise taxes. Mr Sunak said he was on a ‘mission’ to cut taxes.
The Chancellor is understood to be targeting a cut in the basic rate of income tax before the next election. Some senior Tories believe he could even announce the intention today to divert attention from the huge tax rises due to come into force next month.
Conservative mayor of the West Midlands Andy Street said this morning that Mr Sunak should be increasing tax thresholds to account for inflation.
‘I hope he will actually reconsider that because one of the ways we can put money directly into the hands of those who need it is move those thresholds forward,’ he told Today.
He also urged him to come back with another package of support for October.
Rishi Sunak is preparing to deliver his Spring Statement in the Commons later
‘I would hope that he will actually say for October, when the next price cap comes, there will be a further move and I hope it will be targeted, particularly through the Warm Homes Discount, so we really can think about those people who we have tended to call the ‘just about managings’, of whom there are many more in places like this than the affluent areas,’ he said.
He added: ‘One other thing I hope he will do is this is really about that group who want to manage, want to look after their own finances, the decision not to increase the thresholds around income tax and national insurance.
‘I hope he will actually reconsider that because one of the ways we can put money directly into the hands of those who need it is move those thresholds forward.’
IFS director Paul Johnson cautioned that Mr Sunak’s problems had got a ‘lot bigger’ over the past month and he cannot protect Britons from the cost-of-living indefinitely because the country is fundamentally ‘worse off’.
He told BBC Radio 4’s Today programme: ‘He’s got more cash than he expected…
‘The downside is that extra cash can buy less stuff because of all the inflation that we have got around.
‘The plans he set out for spending last year are much less generous than they were intended to be.
‘He thought inflation would be 4 per cent, it’s going to be 8 per cent. So he is going to be buying less schools and hospitals and all those sorts of things.
‘So his big choice is about in some senses whether he tells us, I’ve got all this cash I’m going to use it on other things like sorting out the cost of living crisis, or I’ve got all this cash and I’m going to use it to do wat I said I was going to do last October.
‘I think he is more likely to just spend in cash terms what he said last October, which means actually in real terms we will get less teachers, nurses and all those sorts of things.’
Mr Johnson said Mr Sunak had money to spend on the cost-of-living crisis in the short term.
‘What he can’t do if this is – and it increasingly looks like – a long-term increase in the cost-of-living and a long-term reduction in growth – what he can’t do economically is support us through that forever.
‘We are just worse off than we were. Energy prices are higher, our imports are more expensive, our exports are not any more expensive on the whole. We are worse off. Economically he cannot protect us forever.
‘But he can spend quite a lot of money in this coming year in order to smooth that impact on our living standards.’
Richard Walker, head of supermarket chain Iceland, said they were trying to keep costs down for customers but it is ‘coming at us from all angles’ on price pressures.
He told Today: ‘Some of these things are a short-term blip hopefully… (but) systemically if you look at it food has been too cheap for too long.’
Ministers hint that red tape could be delayed to ease price pressure on food
New red tape could be delayed in an effort to ease pressure on food prices, ministers have suggested.
Environment Secretary George Eustice said the government is ‘kicking the tyres’ of planned regulation in areas such as tackling obesity and climate change.
Mr Eustice reportedly told the Food and Drink Federation’s annual conference in London yesterday that food prices could rise by 8 per cent or more because production was heavily dependent on gas for energy and fertiliser, as well as the chaos in Ukraine – one of the world’s biggest wheat producers.
‘If you have such a sharp rise in the oil and gas price, and you see the price of wheat double, then it is inevitable there will be some impacts on food prices,’ Mr Eustice said.
Asked by The Times which products would be most affected, the Cabinet minister said: ‘Probably some of the sectors like poultry which are heavily dependent on the price of wheat for their feed … they have a situation where feed costs account for around half of all their input costs, and they’re seeing a cost pressure there of sort of 20 to 30 per cent. And so at some point that’s got to feed through the system.’
Mr Eustice admitted the situation was ‘very volatile’ and supermarkets already ‘feel they’ve been absorbing and buffering increased costs for some time’.
Mr Walker said inflation was ‘pushing 10 per cent’ on food and they were hearing worrying stories of customers in distress.
‘We’re hearing of some food bank users declining potatoes and root vegetables because they cannot afford the energy to boil them,’ he said.
Tony Danker, director general of the Confederation of British Industry (CBI), said the economy needs a ‘spring in its step’.
‘What we need the Chancellor to do today is to shore up confidence in the economy to make sure we keep growing, because if we don’t, these problems just get worse,’ he told Sky News.
Mr Danker added that in the current climate: ‘There’s a risk that confidence wavers, businesses stop investing, consumers stay at home – so inflation is hard to tackle.
‘If we don’t have tailwinds in our economy, then the headwinds overwhelm us and so the Chancellor has to double down on growth, he has to help hardest-hit households with the cost of living, he has to help lots of businesses who are dealing already with the rising energy costs – there isn’t a price cap – and he needs to encourage businesses to be confident and invest and grow.
‘That’s the only way we really get through the year ahead.’
Jackie Mulligan, founder of local shopping platform ShopAppy, said this is ‘no cost of living squeeze, it’s outright strangulation’.
‘The current trajectory of inflation poses an existential threat to independent retailers around the UK. If things carry on like this, the term profit margin will disappear from the English dictionary altogether,’ she said.
Tory MPs have urged him to cut taxes immediately – or risk slowing the recovery.
Steve Baker, a member of the Commons Treasury committee, said: ‘We should be cutting taxes now – it is what the economy needs. In particular, we should be halting the rise in national insurance, which is a tax on jobs and a tax on the young to pay for the healthcare of the old.’
Former Cabinet minister Sir John Redwood also called for the national insurance rise to go as part of a £20billion package of tax cuts. ‘The Chancellor says he is a tax-cutter by instinct, which is good to hear. But now is the time to show it – a tax-cutting Chancellor would be cutting taxes now.’
Rishi Sunak faces renewed calls to spike his national insurance hike in tomorrow’s mini-Budget
Former Sainsburys boss Justin King also said the NI hike ‘should not go through’.
He told the BBC that inflation could rise to 10 per cent this year, adding: ‘The real cost-of-living crisis has yet to arrive. Next month the rise in energy bills will hit people hard, closely followed by the rise in NI… in my view the NI rise should not go through.’
Even Labour called for the NI rise to be ditched, with Sir Keir Starmer saying it would be ‘cynical’ to raise taxes on working families now in order to raise funds to cut taxes before the election.
Figures released by HM Revenue and Customs yesterday have put the Chancellor under growing pressure to cut taxes now.
They revealed tax revenues in the financial year to date are up by £132billion on the same period last year.
Officials said the impact of the pandemic meant the figures could not be compared directly.
But several key taxes hit record levels. Inheritance tax raked in a record £5.5billion in the financial year from April to February, smashing through the previous record of £5.4billion for the 2018/19 tax year.
Stamp duty pulled in £18billion, up from the previous record of £16.4billion after a year of red-hot activity in the property market.
And VAT receipts are £23.8billion larger than the same time last year, at £150.2billion. Improved revenues have also led to a sharp falling in government borrowing.
Britain has borrowed £138.4billion in the financial year so far, with one month left to go, according to data from the Office for National Statistics.
This is less than half the £290.9billion of borrowing which the Government racked up over the same time a year earlier, when Mr Sunak
‘This is no cost of living squeeze… it’s outright strangulation’: Small business owners feel the pinch as inflation hits 30-year high
Britons have reacted with fear at the intensifying cost-of-living crisis today as rising prices across the board sent UK inflation soaring to a new 30-year high in February.
The Office for National Statistics (ONS) said Consumer Prices Index inflation rose to 6.2 per cent in February, up from 5.5 per cent in January and again reaching the highest level since March 1992, when it stood at 7.1 per cent.
The rise was higher than expected and comes after prices lifted across food, clothing and footwear and a range of products and services – which are crippling businesses trying to fight their way back following the pandemic.
Among those concerned are Olga and Jovan Sipcenoka, who own a restaurant in St Albans, Hertfordshire, and said they are receiving calls ‘every week’ from suppliers raising prices. The couple, who have three children, added that the concerns about inflation are ‘crippling’ and that they are ‘preparing ourselves for a recession’.
Others raising fears today were Adam and Natalie Bamford, who own Derby-based firm Colleague Box, and said it was a ‘strange and complex time’ for the business amid a ‘frightening increase in household expenses’.
In addition, Mariona and Robert Bolohan, co-founders at London-based translation agency Lotuly, said they were ‘extremely worried’ about the impact of inflation and that the price increases were ‘getting out of hand’.
Here is what a selection of Britons have said today about rising inflation and concerns over the cost of living:
Olga and Jovan Sipcenoka, who have three children and own Per Tutti restaurant in St Albans, Hertfordshire
Olga: ‘As a family-run business, the worry about inflation is crippling and with each day that passes we can feel its impact on our bottom line. Suppliers call every week with new price increases, which is really stressful.
‘For now, we haven’t increased our prices as we have to be in line with our local competitors including some very big chains, and our current dilemma is how long we will be able to swallow the extra costs without passing them onto the customer.
‘And if we do put prices up, how well will it be taken by our guests? Will they be able to afford to dine out as much as they do now?
‘We are a family of five and these are really worrying times. We are preparing ourselves for a recession, as the UK economy is currently facing a perfect storm.’
Adam and Natalie Bamford, owners of Derby-based gifting company Colleague Box
Adam: ‘It’s a strange and complex time balancing the books of business and the frightening increase in household expenses.
‘Having a business where both of the income earners rely on profits it’s an endless battle of increasing our product costs to ensure we take enough home each month just to cover the basics of living.
‘When we created the business, we had the ambition of wealth building but we are now resigned to the lofty ambition of covering costs and ensuring our employees are paid each month.
‘While business is currently very good, the costs going out the door are relentless and the increase in energy and National Insurance around the corner are another massive hurdle.’
Mariona and Robert Bolohan, co-founders at London-based translation agency, Lotuly
‘We’re extremely worried about the impact of inflation on our business. If people and businesses have less disposable income or money, that translates very quickly into reduced sales.
‘The cost of living is increasing enormously and that means we are being forced to take on work that doesn’t pay enough just so we can cover our backs.
‘This is such a vicious circle and it’s hard to get out of it especially as a small business owner without any outside help.
‘I’d definitely suggest the Government start working on capping the cost of certain types of basic foods and also bills.
‘The price increases we are seeing are getting out of hand, with some people reporting over £2,000 for gas/electricity in their next bill. Living with someone vulnerable makes these increases even harder to cope with.’
Jackie Mulligan, founder of the Shipley-based local shopping platform ShopAppy
‘This is no cost of living squeeze, it’s outright strangulation. The current trajectory of inflation poses an existential threat to independent retailers around the UK.
‘If things carry on like this, the term profit margin will disappear from the English dictionary altogether.
‘The thousands of bricks and mortar retail businesses we work with are having to cope with rising costs across the board at the same time as customers, understandably, are having to rein in their spending as their disposable income is being hit with a sledgehammer.
‘Independent retailers already have five and a half times more debt than they had pre-pandemic, and the rate at which inflation is rising will push many off the high street altogether, impacting communities and people’s access to local services.
‘In the absence of Government support, customers need to do whatever they can to support their local businesses. Use them or lose them.’
Lucinda O’Reilly, director at London-based The International Trade Consultancy
‘As a sole trader who works from home, many of my business and personal expenses are intertwined.
‘I’ve been making efficiencies and cost reductions in terms of who and where I buy things from and also thinking really hard about how I do things in the most efficient way regarding energy use and car journeys.
‘It takes time and energy away from focusing on growing my business and can be quite soul destroying after a while.
‘But I’m one of the lucky ones, at least I don’t have to make the choice between eating or heating my home as many people are doing these days.’
Craig Bunting, owner of Derby-based coffee shop Bear
‘It’s hard to identify a cost that isn’t going up at the moment and, as a business owner, it’s a nightmare knowing when and how to act. It’s important to acknowledge the cost of living increases our customers are experiencing. This has to be taken into account when making business decisions.
‘As a hospitality business owner, I believe the Government needs to do more for our sector, to support the jobs our industry creates and to protect against some of the incredible cost increases our businesses are seeing.
‘VAT should remain at 12.5 per cent and the business rates burden should be an immediate priority for hospitality, leisure and tourism going into the spring and summer.’
Sarah Loates, of Derby-based Loates HR Consultancy
‘The economy is running hotter than a boiling kettle, and many of our clients, especially those in the manufacturing sector, are being crippled with rising energy and labour costs.
‘As an HR consultancy, we don’t want to add to their woes by increasing our prices.
‘It’s like being in a boat with a hole, where we prudently reduce our costs and bail out the water, while more water seeps in through the hole.
‘Over the past three months we have seen our office lease, energy, salaries, IT, insurance and bank fees all increase.
‘And that’s before the National Insurance increases in April.
‘At some point we will have to increase our prices too, but we are reviewing our pricing model before we go down that route.’
Lee Chambers, a psychologist at Preston-based Essentialise Workplace Wellbeing
‘As a small business, we are agile and do what we can to mitigate cost increases.
‘While we are well aware we have to play the hand we are being dealt, it’s challenging as there are a multitude of things incrementally creeping up, which puts pressure on those who work with us, and our clients’ bottom lines too.
‘As dynamic and quick-moving as we can be, these things hit our bottom line very quickly and some of our clients are going through a tough time.
‘I’m expecting double digit inflation and for the Bank of England to step in, but I’m not sure it’s going to make much difference. People are trying to stay hopeful but behind the scenes the uncertainty is horrendous.’
Shirley Leader, director of Petersfield-based woman’s clothing boutique Velvet & Rose
‘The increase in inflation is deeply worrying.
‘Already as a small boutique owner, my energy bill is at a record high.
‘On top of that, it is buying season and we are getting less for our money as fabric prices and duty have increased.
‘We absorb what we can, but at some point something will have to give.’
Ruth Bradford, of Bristol-based activity pack company The Little Black and White Book Project
‘With each day that passes, my concern about inflation is growing as people simply aren’t spending.
‘As a consumer I totally get it, it’s not pretty out there, but as a business owner it feels like I’m on borrowed time.
‘All I can do is hope that the website traffic I am seeing does come back and convert at some point as people still seem to be largely browsing.
‘It’s just so hard to predict anything right now and I can’t help feeling it’s just going to get worse.’
Jenny Blyth, owner of London-based gifting company Storm In A Teacup Gifts
‘The current level of inflation means people just don’t have spare cash to spend on things like gifts.
‘Our sales have bottomed out, leaving a wake of stress and anxiety.
‘This inflation is not just draining our pockets, it’s putting a high price on our mental health and that is something which is meant to be priceless.
‘The Government needs to sit up and listen to our cries for help.’
Marianne Clarke, owner of Nottingham-based pet portrait and grooming company, Selston Groom and Train
‘Rising energy bills and the cost of living crisis mean we have stopped putting our heating on when we are cold.
‘I now only use the heating to dry clothes.
‘I wear my dressing gown on top of my normal clothes all the time unless I am working.
‘The cost of everything just seems to be going up and up.’
Gillian Ferguson, of Scotland-based Twisted Empire Bakes
‘My profit margins are being obliterated.
‘We’re now effectively making another mortgage payment for gas and electricity, while the energy companies are reporting record profits.
‘You couldn’t print how I feel about this.’
Taxing jobs is the economics of the madhouse
By Alex Brummer, City Editor for the Daily Mail
The cost of living is soaring – filling up the car and buying food at the supermarket is becoming more expensive by the day, while a sharp hike in energy bills is imminent.
With mortgage and borrowing costs also on the rise, the inflationary background to Rishi Sunak’s Spring Statement today could hardly be more stark.
The Chancellor insists he will ‘stand by’ hardworking families. Here’s how he can achieve that while encouraging wealth creation and making Britain the high-skills, high-pay economy we all want it to be.
The simplest way of easing inflation would be to consign to the dustbin the national insurance increase of 1.25 percentage points – forecast to raise £14billion in 2022-23 and designed to help clear the NHS waiting list and fund social care.
Taxing jobs when the country faces rising prices and a potential slump – something that has followed almost every previous energy crunch – is the economics of the madhouse.
Thanks to falling unemployment, receipts from self-assessment have soared by almost 22 per cent over the past 11 months, while income tax from those on payrolls has jumped by almost 14 per cent to £170billion – way ahead of last year’s £150billion.
The NI hike may have looked necessary last September before the jobs market took off. It is not anymore. Another way is for Sunak to rethink the corporation tax rise.
This is due to rise from 19 per cent to 25 per cent in 2023 in another effort to balance the budget. But lower corporation tax rates pay for themselves.
In 2009-10, the levy stood at 28 per cent and receipts were just over £40billion.
But in 2020-21, with the tax down to 19 per cent, receipts soared to almost £55billion – in spite of Covid.
It’s a celebrated paradox: the lower the taxes, the greater the profit incentive and the more tax generated.
Sunak also plans to incentivise companies to invest more by offering more tax breaks for Research and Development. No one could argue with that. But he needs to go much further and keep the headline rate competitive.
And to ease the cost of living crisis, the temporary VAT cuts for hospitality introduced during Covid should be reinstated.
Britain’s hospitality industry is still reeling from the pandemic and now inflation means that many customers will stay at home because of rising prices.
Cutting the VAT on energy bills, a Labour Party proposal, could also help and release cash for spending elsewhere.
As for fuel duty, the Chancellor’s suggested 5p cut per litre will help – but looks measly given the prices at the pumps. Sunak should also reform business rates. These are deeply unfair.
As more sales have moved to the online giants, the burden on local shops and businesses has caused desolation on high streets. What is needed is a new ‘micro-charge’ added to every online sale.
Meanwhile, during Covid, cutting stamp duty to 0 per cent on homes costing up to £500,000 helped both to stimulate deals and provide an unexpected 70 per cent boost to the Exchequer.
Sunak should reintroduce the stamp-duty holiday to stimulate the market and encourage transactions. And finally, the Chancellor should encourage wealth creation.
There is a tendency in Britain, particularly on the Left, to abhor dividends, bonuses and gains from entrepreneurship.
But taxes on dividend income, capital gains and inheritance are critical to funding public services. We should be encouraging enterprise and entrepreneurship by making it clear wealth will not be penalised.