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Sunak promises tax cuts to ease pressure on UK living costs

Rishi Sunak is expected next week to alleviate “appalling” pressure on the cost of living for UK households as he retires part of the estimated £25bn.

The Chancellor told Tory campaigners on Friday that his priority was to start tax cuts and said he wanted to “make a difference where we can” to help people through the budget squeeze.

Tory MPs are expecting Sunak to use his spring declaration on Wednesday to cut fuel taxes, while Treasury officials have also been considering broader tax cuts in recent weeks to ease a looming cost-of-living crisis.

“People are absolutely scared. They face a triple whammy of higher petrol and diesel prices, higher energy bills and higher household bills,” said Robert Halfon, Tory leader of the Commons Education Committee.

“Helping people must be the Chancellor’s top priority next week. People are struggling to stay afloat. We’re talking about red alert.”

Halfon was one of more than 50 Tory MPs who wrote an open letter to Sunak calling for a reduction in the fuel tax, or VAT, to bring prices down at the pump.

Conservative MPs believe Boris Johnson, who is known at the Treasury as a “giveaway” enthusiast, will secure that cut even as the Chancellor believes the recent sharp drop in crude oil prices will have more of an impact on world markets than any fuel tax cuts.

Johnson and Sunak agreed on the main points of the spring statement more than a week ago, but their relationship has been strained in recent months. The Prime Minister’s allies believe the Chancellor has been less than supportive in recent years party gate Scandal.

Meanwhile, Sunak this week insisted that Johnson delay the release of an energy security strategy to give him more time to assess the cost of plans to develop nuclear and green power.

Chancellor’s allies insist that the spring declaration is not a “mini-budget” and will be “political light”, but the chancellor is under strong political pressure to offer help to budgets.

Disposable incomes are expected to be squeezed harder than at any time in 30 years, as inflation is set to rise to over 8 per cent this spring, according to the Bank of England, and energy bills soar to an average of £3,000 a year from October.

Speaking at the Blackpool Conservative Spring conference, Sunak reassured activists that he had raised taxes enough to stabilize public finances and that “my priority for the future is to cut taxes”.

Those involved in preparing the spring statement said changes to income tax and Social Security allowances and thresholds had been under consideration in recent weeks.

The Treasury declined to comment, but Sunak told colleagues he wanted to postpone big budget decisions until later in the year when the economic picture, including the situation in Ukraine, could be clearer.

While the energy crisis is now being felt at the pumps, Sunak argues that households are protected from a further rise in household energy bills until a new price cap, which could reach £3,000, is set in October.

But analysts believe Sunak has more “leeway” to offer help to households if he decides to act next week instead of waiting for his main budget in the fall.

Stronger job growth and higher wage and price inflation have pushed tax revenues well beyond Sunak’s fiscal watchdog October forecast, leaving public borrowing around £25bn lower than expected in 2021-22.

The fallout from the Russian invasion of Ukraine will lead the Office of Budgetary Responsibility to forecast a serious fall in household incomes and downgrade real growth projections, but higher inflation will significantly improve the outlook for public finances, especially as this is not too expect is in much higher interest rates, increasing the cost of servicing the debt.

With higher inflation, income taxes and VAT receipts increase faster than expected. The Institute for Fiscal Studies has calculated that with the Chancellor freezing all income tax allowances and thresholds until 2025-26, higher inflation will turn the expected £8bn a year tax hike into an increase of £20bn a year.

George Buckley, chief economist for Europe at Nomura, said the “better deficit results [this year] give the chancellor some leeway” to tackle the households’ cost-of-living crisis.

https://www.ft.com/content/f52f790f-d3d9-4f7f-b6d7-760d9643b8bd Sunak promises tax cuts to ease pressure on UK living costs

Adam Bradshaw

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