When Rishi Sunak stands at the dispatch box tomorrow for his Spring Statement he will be caught in the crosshairs of an economic storm.
The Conservative chancellor faces demands to ease the huge pressure households are coming under due to rising inflation and soaring energy bills which will leave low and middle earners worse off and push many into poverty.
Sunak and Prime Minister have stuck to their plan to actually raise taxes, increasing National Insurance contributions across the UK to help the NHS get over the covid pandemic.
Despite spending billions on furlough payments to get the country though lockdown and despite making an emergency offer of £350 off energy bills the chancellor will struggle to contain the growing sense of prices running out of control.
Sunak, who has been in the Commons for eight years, is also about to learn the lesson all politicians eventually absorb – voters do not thank chancellors for what they have done, they simply ask what are they going to do next?
Here’s what to look out for when Sunak gets to his feet:
Cost of living disaster
In this mini-budget the Chancellor is expected to lay out the sheer scale of the cost-of-living crisis facing the nation and households.
This will be in the form of the Office for Budget Responsibility (OBR) forecasts on GDP growth, borrowing, debt and inflation.
The Bank of England has already warned that inflation could reach eight per cent in the coming months, and remain higher for longer.
As prices rise consumers put off spending, which in turn could reduce economic growth.
Higher costs also mean businesses delay investment, and soaring energy costs will squeeze incomes even more.
Given these circumstances, the chancellor may be forced to act given how quickly things have changed since his budget statement last October. There are no signs that he is ready to take drastic action having already announced a £150 discount on energy bills and a £200 loans to offset rising costs.
Although the Chancellor would like the Conservatives to be a low-tax party covid, the Ukraine war and inflation have thrown that idea out the window.
By the next general election in 2024 government policy is set to have added two per cent of GDP to the UK tax burden.
In only slightly more than two years as Chancellor Rishi Sunak has announced tax rises of a similar scale to those seen under Gordon Brown’s decade in the Treasury.
It is not a good look for the Chancellor and while he will be looking for cheers from the Tory benches MPs with long experience fear the cost of living and raising taxes at the same time will become a drag anchor which could cost the party the next election .
National Insurance taper
Sunak faces massive opposition from Tory MPs over plans to raise National Insurance Contributions (NICs) by 1.25 per cent in April in order to pay for the NHS and social care reforms in England.
NICs is a reserved power so the rise will affect Scottish taxpayers whose income tax rates are set separately in Holyrood.
But the UK is the only major world economy to be raising taxes on working people during the cost-of-living crisis so everyone, Labour, SNP and even Tory Ministers, are pushing for the rise from 12 per cent to 13.25 per cent from April 2022 to be cancelled.
Downing Street insisted the rise is going ahead but it could be tweaked by raising the threshold at which people start paying.
There is speculation the Chancellor could raise the threshold, which is currently lower than the point at which people pay Income Tax.
That would take some of the lowest earners out of paying the tax altogether. The failure to raise the threshold by inflation is a “stealth tax” that’s costing Brits an extra £45 a year, says research.
Benefit and pension rates
Sunak will raise benefits by just 3.1 per cent, which means as little as £10.07 a month on Universal Credit which hardly makes up for the £20 a week cut in October and far less than inflation.
Pensions will also rise by just 3.1 per cent after the triple lock was axed. In last October’s budget Sunak cut the Universal Credit taper rate at which people start losing benefits, from 63p to 55p. But this only helps those who work, not the sick or out-of-work.
Fuel duty was already frozen at October’s Budget for a 12th year in a row, handing £1,900 to the average car driver since 2010.
But with pump prices soaring the Chancellor is under intense pressure to cut duty in what will be a largely symbolic move.
Shadow Chancellor Rachel Reeves said Labor would not oppose a fuel duty cut but warned: “Even a 5p reduction in fuel duty will only reduce filling up the car with petrol by £2. So I don’t think that really rises to the scale of the challenge.”
But, what the Treasury gives with one hand it takes with the other.
As drivers increasingly move to electric vehicles the chancellor is considering road tolls as a new way of taxing drivers and replacing the lost income from fuel duty.
One more from the bottom of the bag
No one expects the usual “rabbit from the hat” moment of theater from the chancellor but there are plenty warnings about cash from Leveling Up funds being rehashed and an appeal for people to be ready to make a sacrifice for the economic cost of war in the Ukraine.
Sunak has faced calls from Tory MPs to increase defense spending in response to Russia’s attack, but as he has to pointed out £24 billion of new defense spending announced in last year’s Integrated Review.
In good news, Sunak reportedly has an extra £40 billion in the Treasury books as rising prices lead to higher taxes. But soaring inflation looks set to push up his borrowing bill, as debt costs more to pay back.
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