[UK] Chancellor attempts to cushion cost of living blow with tax cuts

UK Chancellor Rishi Sunak cut fuel duty and diluted a looming payroll tax increase on March 24 as he sought to alleviate the cost of living crisis against the backdrop of slowing economic growth, Reuters reports.

However, with inflation set to hit a 40-year high of nearly 9 per cent later in the year, government forecasters said Britons were facing the biggest hit to their living standards since records began in the late 1950s; even after the Chancellor’s measures.

In his half-yearly budget update, Mr Sunak set out plans to inject about £17.6billion ($23.2billion) into the economy in the coming financial year.

"The invasion of Ukraine presents a risk to our recovery – as it does to countries around the world," Sunak told parliament.

New forecasts from the Office for Budget Responsibility (OBR) predict economic growth of 3.8 per cent this year, far less than the 6.0 per cent it had projected in October.

But many of the factors behind the squeeze on living standards were in place before Russia invaded Ukraine on February 24.

Data published earlier on March 23 revealed that inflation had already hit a 30-year high of 6.2 per cent in February before the war began to push energy and some food prices even higher.

A sharp rise in social security contributions - originally designed to raise around £12billion a year - is still scheduled for April as the Chancellor seeks to fund more spending on health and social care in the wake of the COVID-19 pandemic.

But in an attempt to reduce that hit, Mr Sunak said he would increase the threshold at which workers start to pay the contributions by £2,700 from July, bringing it into line with the income tax system.

"That's a £6billion personal tax cut for 30 million people across the United Kingdom," he said, adding that it would save workers more than £330 a year each and was the largest single personal tax cut in a decade.

Fuel duty will be cut by 5p a litre for the next 12 months at a one-off cost of 2.4 billion pounds and the main rate of income tax will fall to 19 per cent from 20 per cent in 2024 when the UK is due to hold its next national election. This will reduce revenue by £6billion a year.

Rishi Sunak also launched a review of business taxation, with cuts planned for the autumn budget.

Other European governments have reportedly responded to the latest surge in energy prices. France, Italy, Spain and Sweden have moved to subsidise vehicle fuel costs and Germany is considering similar plans.

The OBR produces the forecasts that underpin the Government's planning, it said the Chancellor was undoing only one-sixth of the tax rises he had previously announced.

Mr Sunak's measures also provide little help to those Britons who are out of work and cannot afford a car, with just £500million added to the hardship fund.

"This package does next to nothing for those getting hardest-hit by rising prices - those who are disabled and not working just got told they are on their own," Torsten Bell - director of the Resolution Foundation think tank - said.

Only a third of the support announced on March 23 would go to the poorest half of the nation, he added.

The Labour Party had called for the government to scrap the planned national insurance rise altogether.

"Today was the day that the chancellor could have put a windfall tax on oil and gas producers to provide real help for families. But he didn't," Labour finance spokesperson Rachel Reeves said.

The OBR's new budget forecasts show Britain on course to borrow £29billion less over the next four years than October estimates, despite a much weaker growth outlook.

Borrowing for the current financial year, which ends on March 31, is due to come in at £128billion, £55billion less than previously forecast, in the main because tax revenues have been higher than the OBR had anticipated.

British government bond prices reportedly rallied on the prospect of lower future debt issuance.

The forecasts showed inflation, as measured by the consumer price index, averaging 7.4 per cent in 2022, up from October's forecast of 4.0 per cent.

This will push up the cost of servicing government debt - around a quarter of which is inflation-linked - to 83 billion pounds in the coming financial year, a 25-year high as a share of tax revenues, before falling back to historically low levels.

The OBR said gross domestic product would grow by 1.8 per cent, 2.1 per cent and 1.8 per cent in 2023, 2024 and 2025. In October, it forecast growth of 2.1 per cent, 1.3 per cent and 1.6 per cent over the same three years.

Source: Reuters

(Quotes via original reporting)

UK Chancellor Rishi Sunak cut fuel duty and diluted a looming payroll tax increase on March 24 as he sought to alleviate the cost of living crisis against the backdrop of slowing economic growth, Reuters reports.

However, with inflation set to hit a 40-year high of nearly 9 per cent later in the year, government forecasters said Britons were facing the biggest hit to their living standards since records began in the late 1950s; even after the Chancellor’s measures.

In his half-yearly budget update, Mr Sunak set out plans to inject about £17.6billion ($23.2billion) into the economy in the coming financial year.

"The invasion of Ukraine presents a risk to our recovery – as it does to countries around the world," Sunak told parliament.

New forecasts from the Office for Budget Responsibility (OBR) predict economic growth of 3.8 per cent this year, far less than the 6.0 per cent it had projected in October.

But many of the factors behind the squeeze on living standards were in place before Russia invaded Ukraine on February 24.

Data published earlier on March 23 revealed that inflation had already hit a 30-year high of 6.2 per cent in February before the war began to push energy and some food prices even higher.

A sharp rise in social security contributions - originally designed to raise around £12billion a year - is still scheduled for April as the Chancellor seeks to fund more spending on health and social care in the wake of the COVID-19 pandemic.

But in an attempt to reduce that hit, Mr Sunak said he would increase the threshold at which workers start to pay the contributions by £2,700 from July, bringing it into line with the income tax system.

"That's a £6billion personal tax cut for 30 million people across the United Kingdom," he said, adding that it would save workers more than £330 a year each and was the largest single personal tax cut in a decade.

Fuel duty will be cut by 5p a litre for the next 12 months at a one-off cost of 2.4 billion pounds and the main rate of income tax will fall to 19 per cent from 20 per cent in 2024 when the UK is due to hold its next national election. This will reduce revenue by £6billion a year.

Rishi Sunak also launched a review of business taxation, with cuts planned for the autumn budget.

Other European governments have reportedly responded to the latest surge in energy prices. France, Italy, Spain and Sweden have moved to subsidise vehicle fuel costs and Germany is considering similar plans.

The OBR produces the forecasts that underpin the Government's planning, it said the Chancellor was undoing only one-sixth of the tax rises he had previously announced.

Mr Sunak's measures also provide little help to those Britons who are out of work and cannot afford a car, with just £500million added to the hardship fund.

"This package does next to nothing for those getting hardest-hit by rising prices - those who are disabled and not working just got told they are on their own," Torsten Bell - director of the Resolution Foundation think tank - said.

Only a third of the support announced on March 23 would go to the poorest half of the nation, he added.

The Labour Party had called for the government to scrap the planned national insurance rise altogether.

"Today was the day that the chancellor could have put a windfall tax on oil and gas producers to provide real help for families. But he didn't," Labour finance spokesperson Rachel Reeves said.

The OBR's new budget forecasts show Britain on course to borrow £29billion less over the next four years than October estimates, despite a much weaker growth outlook.

Borrowing for the current financial year, which ends on March 31, is due to come in at £128billion, £55billion less than previously forecast, in the main because tax revenues have been higher than the OBR had anticipated.

British government bond prices reportedly rallied on the prospect of lower future debt issuance.

The forecasts showed inflation, as measured by the consumer price index, averaging 7.4 per cent in 2022, up from October's forecast of 4.0 per cent.

This will push up the cost of servicing government debt - around a quarter of which is inflation-linked - to 83 billion pounds in the coming financial year, a 25-year high as a share of tax revenues, before falling back to historically low levels.

The OBR said gross domestic product would grow by 1.8 per cent, 2.1 per cent and 1.8 per cent in 2023, 2024 and 2025. In October, it forecast growth of 2.1 per cent, 1.3 per cent and 1.6 per cent over the same three years.

Source: Reuters

(Quotes via original reporting)