Rishi Sunak will promise “security” to cash-strapped families as he announces a fresh package of measures to tackle the cost of living crisis on Wednesday, but will continue to underline the importance of fixing the public finances.
The chancellor has been under intense pressure to take action to help households with the rocketing cost of fuel and other essentials. The financial expert Martin Lewis told MPs on Tuesday that many households are facing a “fiscal punch in the face” when the energy price cap rises next month.
Sunak is widely expected to use his update on the economy to announce a cut in fuel duty of at least 5p a litre, but hinted on Tuesday night that he might come up with a more extensive package of support, saying he would “stand by” hard-working families.
Options open to him include raising the threshold at which workers start paying national insurance contributions (NICs), deferring the 1.25-point NICs increase for employers and employees, uprating state benefits in line with the 8% inflation rate expected for April, and providing help to energy-intensive businesses.
The NICs increase, which is earmarked for health and social care, is loathed by many of the chancellor’s Tory colleagues, including some cabinet ministers, who would like to see it scrapped. However, Sunak and the prime minister signed a joint op-ed in January insisting it was “the right plan”.
Raising the threshold at which it starts to be paid, which will stand at £9,880 from April, closer to the personal allowance of £12,570 that applies to income tax, would exempt lower earners, a move likely to be popular with Sunak’s party.
The Labour leader, Keir Starmer, accused the chancellor of introducing the controversial tax rise to give himself the scope to promise tax cuts ahead of the next general election.
“What the chancellor, I think, is doing here is introducing a tax that doesn’t need to be introduced, that’s really going to hurt people, and he’s not doing that for good economic reasons, he’s doing that – he hopes – so that just before the election he can cut taxes and claim to be a tax-cutting government. That is cynical. It’s not the right economic answer; it is cynicism,” he told the BBC’s The World at One.
A fuel duty cut has been demanded by many Conservative backbenchers, as prices at the pump have soared in the wake of Russia’s invasion of Ukraine. However, critics have warned that it is not the best way of helping those hardest hit by the cost of living crisis.
Ryan Shorthouse, chief executive of the Conservative thinktank Bright Blue, said: “The fairest way to support the broadest range of struggling households is to increase broad subsidies such as universal credit or cut broad taxes, such as national insurance, income tax or VAT.”
He added that a fuel duty cut would be “poorly targeted, since fewer than half of the poorest 20% of households have a car”.
Sunak’s statement comes against the backdrop of mounting public concern about the economic outlook. In a new YouGov poll published on Tuesday, almost two-thirds of respondents (63%), including 40% of Conservative voters, said the government is handling the economy badly.
The statement was originally planned to be simply an update on the prospects for the economy and the public finances, but has been turned by the war in eastern Europe into the latest of a string of mini-budgets.
In pre-released extracts of his speech, Sunak portrays the spring statement as part of the war effort against Russia, saying: “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.”
That includes “security for working families as we help with the cost of living,” he says, as well as “the security of more resilient public finances”.
Official figures released on Tuesday showed in the first 11 months of the current financial year the state borrowed £26bn less than had been predicted by the independent Office for Budget Responsibility (OBR) in October.
The OBR will set out updated forecasts on Wednesday that are likely to point to the potential damage to the economy from the war in Ukraine.
Sunak released a series of glossy pictures of himself preparing for the statement on Tuesday, including standing over a long table with the 24 pages of what appeared to be his speech laid out on it.
He was derided by Labour for a tweet that said: “Delivering greater economic security for our people, accelerating growth and productivity, and making sure the proceeds of that growth are shared fairly. That is not the work of any one statement. But that work begins tomorrow.”
A Labour spokesperson said: “The Conservatives have been in power for 12 years, not 12 days. After presiding over weak economic growth for more than a decade and raising the tax burden to levels not seen for 70 years, how can the chancellor talk about the work only starting now?”