Rishi Sunak’s Spring Statement had few surprises, apart from a promise to cut income tax as a campaign slogan in what now looks more than certain to be the 2024 general election.
The proposed 1p cut in income tax will not affect tax payers in Scotland where tax rates are devolved and there is already a starter rate of 19p for low earners.
Other measures announced by the chancellor in the mini-budget will have a direct effect on day-to-day life, although poverty campaigners and opposition politicians are already asking if it will make much difference as inflation rises and energy prices soar.
The statement came just hours after it was revealed that inflation reached 6.2 per cent in February, the highest it has been for 30 years.
There are predictions inflation could hit 10 per cent by the autumn, wiping out any money-saving measures the chancellor announced and trapping the UK economy in low growth and rising costs.
Here are the five big parts of the Spring Statement:
5p cut in fuel tax
The cut to fuel duty means the cost of filling up the average car will fall by around £2.
The chancellor said this will save a typical driver £100 a year. There are no adjustments in taxes on alcohol or cigarettes, these rates are set in the Autumn budget.
Sunak said of his emergency measure: “The biggest cut to all fuel duty rates – ever. And while some have called for the cut to last until August, I have decided it will be in place until March next year – a full 12 months.
“Together with the freeze, it’s a tax cut this year for hard-working families and businesses worth over £5 billion. And it will take effect from 6pm tonight.”
Is that it?
Sunak promised £500 million to English councils to help families in poverty with a Household Support Fund, which means an extra £45 million for the Scottish Government to choose to spend as it sees fit.
Meanwhile there was no increase to benefits as people face a cost of living disaster, with inflation rising twice as fast as welfare and pensions which will only go up by 3.1 per cent.
As Sunak announced the measure one MP could be heard to shout; “Is that it?”.
The SNP’s Alison Thewliss described the measures as “thin” and “not enough” for struggling families.
Rise in NICs threshold
Sunak is going ahead with his 1.25 per cent rise in National Insurance Contributions (NICs) to help fund the NHS after the covid pandemic but has bowed to pressure to help the less well off.
The salary threshold at which workers start making NICs will increase by £3,000 to £12,570, bringing it into line with the income tax threshold.
Sunak said that was a tax cut for 30 million people across the UK, and was “the biggest single personal tax cut in a decade”.
At a cost of £6 billion, half of what he wanted to raise, would exclude 70 per cent of people from the rise.
Labour’s Rachel Reeves described this as the chancellor arguing against his own tax rise.
Tax cuts by the time of the next election
Sunak said the basic rate of income tax would fall from 20p to 19p in 2024.
This raised a cheer from the Tory benches and the chancellor challenged the SNP government in Edinburgh to match his tax cut. Perhaps he was unaware that the starer rate for income tax in Scotland is already at 19p for earnings between £12,570 and £14,732 a year.
To compensate for the tax cut the Treasury will add £350 million to the Scottish Government budget for 2024-25.
The cost of war
Sunak warned that the economic sanctions imposed on Vladimir Putin’s regime “are not cost free for us at home”.
He said: “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.
“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.”
Growth is slowly recovering
He said that meant the Office for Budget Responsibility was downgrading its growth forecast for the UK economy to 3.8 per cent this year, 1.8 per cent in 2023, and to 2.1 per cent, 1.8 per cent and 1.7 per cent in the following three years.
Inflation will average 7.4 per cent across the next year, the highest in decades..
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