Living standards set to plunge despite Rishi Sunak cutting taxes

Living standards set to plunge despite Rishi Sunak cutting taxes

RISHI Sunak yesterday cut taxes to ease the cost of living crisis — but Britons still face the biggest plunge in living standards since World War Two due to rocketing inflation.

The Chancellor spared more than two in three earners from next month’s National Insurance hike and slashed 5p off fuel duty in a £15billion mini-Budget boost.

He also vowed to cut income tax by a penny in two years’ time from 20p in the pound to 19p.

But disposable incomes are still set to fall by 2.2 per cent next year — the biggest hit since records began in the 1950s — partly driven by energy bills soaring to more than £2,800 a year.

And, despite tax cuts, the country is still facing its largest tax burden since the late 1940s by 2025.

Dire economic growth forecasts and the highest inflation for 40 years have devastated the Government’s economic plans — with £83billion needed for debt interest next year alone.

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Growth will also stutter. The Office for Budget Responsibility (OBR) downgraded GDP — a measure of the size of the economy — from the six per cent forecast in October last year to 3.8 per cent. Next year’s forecast fell from 2.1 to 1.8 per cent.

Mr Sunak, who had faced pressure to axe the 1.25 percentage point cent NHS-boosting National Insurance rise, said his tax cuts would help struggling families.

He added, however, that he could not “protect everyone” against the full impact of inflation and the war in Ukraine.

He said: “Where we can make a difference of course we will, and that’s why the policies announced today are a significant intervention.

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“They will put billions of pounds back in the pockets of hard-working British families.”

The timing of the Chancellor’s income tax cut was seen by MPs as the point when the starting gun will be fired on the next election.

But Brits face two tough years before then with inflation forecast to hit 8.7 per cent by the end of the year. The average across the year will be seven per cent.

There was no help given to teachers, nurses and soldiers’ pay in Mr Sunak’s Spring Statement mini-Budget, meaning public sector wages will not keep pace with prices.

The OBR said inflation, combined with rising taxes, will “weigh heavily on living standards in the coming 12 months”.

Household energy bills are also forecast to soar to more than £2,800 a year from October when the price cap is likely to rise again by a record £830.

A typical household is already facing a 54 per cent hike to £1,971 a year from April 1 as a result of soaring gas prices.

To try to ease the pain of the National Insurance hike, Mr Sunak raised the threshold it kicks in at by £3,000 to £12,570 from July.

That will see 70 per cent of workers pay less than they would have, even after April’s hike.

Trumpeting the tweak, Mr Sunak said: “That’s a £6billon personal tax cut for 30 million people across the UK.

“The largest increase in a basic rate threshold. Ever. And the largest single personal tax cut in a decade.”

Where we can make a difference of course we will, and that’s why the policies announced today are a significant intervention. They will put billions of pounds back in the pockets of hard-working British families.

Minimum wage earners will be £242 better off. The average earner on £24,000 will keep £158. No one earning £36,000 a year will lose out from next month’s Health and Social Care Levy.

Mr Sunak said his tax plans would deliver the “biggest net cut to personal taxes in over a quarter of a century”.

But critics say many better-paid workers will never benefit from the income tax cut as they will be dragged into a higher rate after the thresholds were frozen last year.

Official statistics reveal that created three times more impact on the tax burden than a penny cut.

Mr Sunak had room to throw families a lifeline to help with bills thanks to better-than-expected tax receipts, in part fuelled by inflation.

But he was cautious about blowing the entire £20billion and said he had to put the Treasury coffers on an even keel after the pandemic.

His 5p fuel duty cut — which took effect from 6pm last night and nominally lasts for a year — was a major victory for The Sun’s 12-year Keep It Down campaign.

It will save motorists around £3.30 every time they fill up.

He was left with little choice but to help offset the soaring oil and gas prices driven by Russia’s war on Ukraine.

Critics accused Mr Sunak of doing too little to help families feeling the pinch.

Shadow chancellor Rachel Reeves said: “It is clear the Chancellor doesn’t get the scale of the challenge.”

Torsten Bell, of the Resolution Foundation think tank, said: “I really can’t believe 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’re on their own.”

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Paul Johnson, of the Institute for Fiscal Studies, tweeted: “No extra money for health, schools or other public services despite huge increase in inflation.

“Likely implies big real pay cuts for most public sector workers.”

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