Rishi Sunak has raised the national insurance threshold by £3,000 and announced a cut in fuel duty tax by 5p a litre in an attempt to ease the burden of the cost of living crisis.
Unveiling his spring statement in the Commons, the chancellor announced that he is increasing the rate at which workers start paying national insurance to £12,570 to ease the burden on the low paid.
The national insurance threshold will now be in line with income tax from July this year.
Live updates as Rishi Sunak unveils mini budget
The chancellor had been under pressure to scrap the health and social care levy – effectively an increase in national insurance payments – which involves serious increases in tax payments for most families next month.
AdvertisementMr Sunak insisted that the levy will stay despite rising inflation rates, but told MPs: “A long-term funding solution for the NHS and social care is not incompatible with reducing taxes on working families.”
0:47 Chancellor Rishi Sunak announces fuel duty will be cut by 5p per litre from 6pm todayFuel duty cut by 5p a litre until March 2023
Mr Sunak also said a cut in fuel duty of 5p a litre will be in place for a year as petrol costs continue to rise.
He told MPs the move was being made “for only the second time in 20 years”.
Read more: How much a 5p cut in fuel duty saves on filling your tank
On Tuesday, the average cost of a litre of petrol at UK forecourts was 167.3p, the latest figures from data firm Experian Catalist show – another record high after multiple days of new peaks.
For diesel, the average cost was 179.9p.
Immediately after the chancellor’s announcement, supermarket giant Asda said it will cut fuel prices by 6p a litre this evening.
Image: Rishi Sunak said income tax will be cut from 20 to 19 pence in the pound by 2024Basic rate of income tax cut by 1p in the pound by 2024
In a surprise move, Mr Sunak also told MPs that the basic rate of income tax will be cut from 20p to 19p in the pound by the end of this Parliament – 2024.
He said this equates to a £5bn tax cut for 30 million people.
It comes as the chancellor announced that he is today publishing a new tax plan which will see “a principled approach to cutting taxes”.
Mr Sunak said the new tax plan will help families with the cost of living, create conditions for higher growth and ensure the proceeds of growth to be shared fairly.
Other announcements in the chancellor’s mini budget included:
• VAT scrapped on energy efficiency measures such as solar panels, heat pumps and insulation installed for five years
• The doubling of the Household Support Fund to help vulnerable families to £1bn – with local authorities to receive the money from April.
• The Employment Allowance will increase to £5,000 from April – which he described as a “new tax cut” worth up to £1,000 for half a million small businesses
• An intention to reform R&D credits
“My tax plan delivers the biggest net cut to personal taxes in over a quarter of a century,” the chancellor said as he concluded his statement.
The Treasury said the moves will see 70% of workers pay less tax from July.
Image: Shadow chancellor Rachel Reeves said the Conservatives ‘have become the party of high taxation’Labour: Policies won’t help those ‘worried sick’ due to rising bills
But Labour accused the Mr Sunak of “making the cost of living crisis worse, not better”.
Shadow chancellor Rachel Reeves said the chancellor could have “introduced a windfall tax on oil and gas companies”, “properly scrapped his national insurance hike” and “set out a proper plan to support businesses and create jobs”, adding: “But he didn’t.”
Read more: Inflation hits 30 year high
She continued: “Inflation is at its highest level for 30 years and rising. Energy prices at record highs. People are worried sick.
“For all his words, it is clear that the chancellor does not understand the scale of the challenge. He talks about providing security for working families, but his choices are making the cost of living crisis worse, not better.”
Ms Reeves also said the Conservatives “have become the party of high taxation because they are the party of low growth”.
Image: Universal Credit – a payment for people of working age who are on low income – was not mentioned in the spring statementNo mention of Universal Credit changes
Responding to Mr Sunak’s statement, Paul Johnson, director of the Institute for Fiscal Studies (IFS), said “the biggest omission” from the chancellor’s spring statement was “anything for those subsisting on means-tested benefits”.
“They will be facing cost of living increases of probably 10% but their benefits will rise by just 3.1% – and (it is a) cut compared to last year if you account for withdrawal of £20 (Universal Credit) uplift,” he tweeted.
Policy director of Child Poverty Action Group, Sara Ogilvie, added that the measures Mr Sunak announced “don’t come close to bridging the gap between what the lowest income families have and what they need”.
Read more: Martin Lewis says energy companies are playing ‘fast and loose’
“The chancellor should have increased benefits to match inflation – the most efficient way to help hard-pressed households,” she said.
“But on current plans, he will impose a real terms cut of £663 on families on Universal Credit at the worst possible time. That will leave millions without enough to live on.”
Meanwhile, the Night Time Industries Association said they were “extremely disappointed” with the chancellor’s spring statement, having called for an extension of VAT and business rates reliefs, a cancellation of the proposed National Insurance hike and action on business energy bills.
3:01 Economic sanctions designed to hit Russia will affect the cost of living in the UK with the rise of oil, gas and food pricesSunak: Sanctioning of Putin’s regime ‘not cost-free for us at home’
Before unveiling the contents of his fiscal plan, Mr Sunak warned that the nation must prepare for “the economy and public finances to worsen, potentially significantly” because of the impacts of Russia’s invasion of Ukraine.
He said the UK’s actions against Russian President Vladimir Putin are “not cost-free for us at home”.
“It is too early to know the full impact of the Ukraine war on the UK economy,” he told the Commons.
“But their initial view, combined with high global inflation and continuing supply chain pressures, means the OBR now forecast growth this year of 3.8%.
“The OBR then expect the economy to grow by 1.8% in 2023, and 2.1%, 1.8% and 1.7% in the following three years.”
A document released by the OBR (Office for Budget Responsibility) – the public body which provides independent economic forecasts – said the rise in inflation is expected to cause “the biggest fall in living standards in any single financial year since ONS records began in 1956-57”.
2:22 The Bank of England warns the inflation squeeze on households will intensify due to Russia’s invasion of Ukraine impacting energy.Inflation expected to top 8% in April
The chancellor said he would unveil proposals intended to build “a stronger, more secure economy” as people across the UK face growing household bills which have been exacerbated by the war in Ukraine.
As a result of the invasion, the Bank of England now thinks inflation will top 8% in April and go even higher in the autumn.
Mr Sunak said he will continue to “weigh carefully” calls for additional public spending.