Spring statement: Chancellor unveils fuel duty cuts and income tax boost
- Credit: PA
Chancellor Rishi Sunak has announced several measures to help support households amid the rising cost of living crisis.
In his Spring Statement address just after 12.30pm on Wednesday (March 23), Mr Sunak confirmed several immediate measures to help people and promised the government would "stand by them".
Mr Sunak said the UK’s actions against Russian President Vladimir Putin’s regime are “not cost-free for us at home” and present a “risk” to the recovery but added it was "too early to know the full impact of the Ukraine war on the UK economy."
In the first measure, Mr Sunak said that fuel duty will be reduced by 5p per litre as of 6pm on Wednesday evening.
He said: "Today I can announce that for only the second time in 20 years, fuel duty will be cut.
“Not by one, not even by two, but by 5p per litre. The biggest cut to all fuel duty rates – ever.
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“While some have called for the cut to last until August, I have decided it will be in place until March next year – a full 12 months. Together with the freeze, it’s a tax cut this year for hard-working families and businesses worth over £5 billion, and it will take effect from 6pm tonight."
Mr Sunak's announcement comes after fuel prices hit new record highs.
Figures from data firm Experian Catalist show the average price of a litre of fuel at UK forecourts on Sunday (March 20) was 167p for petrol and 179p for diesel, amounting to an increase of 18p for petrol and 26p for diesel over the past month.
Labour calculated the average family is facing an annual rise of £386 on the cost of petrol and is calling for a cut to be funded by a windfall tax on energy firms who have enjoyed the sky-high gas and oil prices.
Mr Sunak also announced VAT will be reduced from 5pc to zero on materials such as solar panels, heat pumps and insulation in a bid to help homeowners install more energy saving materials.
He said: “We’ll also reverse the EU’s decision to take wind and water turbines out of scope – and zero rate them as well.
"We’ll abolish all the red tape imposed by the EU. A family having a solar panel installed will see tax savings worth over £1,000. And savings on their energy bill of over £300 per year.”
The Chancellor added he is doubling the Household Support Fund to £1 billion, with local authorities best placed to help those in need in their areas, adding they will receive this funding from April.
This is cash that families most in need can apply for to help them with things like food and heating bills.
VAT will be scrapped for energy efficiency measures such as solar panels, heat pumps and insulation to tackle high energy bills.
A family having a solar panel installed could see tax savings worth over £1,000, and savings on their energy bill of over £300 per year.
The UK Government has already announced a £9 billion energy bill rebate package, worth up to £350 each for around 28 million households, an increase to the national living wage, worth £1,000 for full-time workers, and a cut to the universal credit taper.
The OBR said: “Government support for household bills announced in February boosts most households’ incomes by £350 in 2022-23, offsetting around half the £700 rise in energy bills taking effect in April.”
Income tax and National Insurance
Mr Sunak unveiled a £6 billion plan to increase the threshold at which people start paying national insurance contributions (NICs) by £3,000 to £12,570 from July.
The Chancellor said it was "a £6 billion cut in personal tax cut for 30 million people across the United Kingdom, a tax cut for employees worth over £330 a year".
Mr Sunak said around 70pc of workers would have their tax cut by more than the increase coming in April.
The Chancellor also said he will cut the basic rate of income tax from 20 pence in the pound to 19 before the end of the current Parliament, in 2024.
Meanwhile, 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.
According to the Institute for Fiscal Studies (IFS) think-tank, bringing together the expected changes in earnings, the reforms to taxes, and the energy measures announced in February, a middle earner on £27,500 per year can expect to be about £360 worse off this year than they were last.
It said the situation is likely to be “much tougher for those out-of-work on state support (including pensioners)”.
The Chancellor plans to cut the basic rate of income tax from 20p to 19p from 2024.
The cut is worth £5 billion for workers, savers and pensioners and will be the first cut to the basic rate in 16 years, according to the Treasury.
Shadow chancellor Rachel Reeves said the Government's plan did nothing for people on the edge of fuel poverty or for pensioners who are facing a "real-terms cut" to their income.
Rachel Reeves told the Commons: "At the weekend the Chancellor was asked about fuel poverty and he didn't even know the numbers.
"It is shameful that he doesn't, because when Martin Lewis predicts that 10 million people could be pushed into fuel poverty the Chancellor should sit up and listen."
She added: "We know that pensions and social security are not going to keep up with inflation. Pensioners and those on social security are being given a real-terms cut in their incomes.
"So, what analysis has the Chancellor done of the impact of benefits being up-rated by less than inflation? How many more children and pensioners will drift into poverty because of this government?"
Food banks and charities have been reporting surges in cries for help.
Gareth McNab, director of external affairs at Christians Against Poverty, said Mr Sunak has left “a glaring hole in terms of an opportunity to provide a longer-term fix to make sure the social security system is linked to the real costs people face”.
Here are the key points from Chancellor Rishi Sunak's Spring Statement:
- Mr Sunak said by the end of the current Parliament in 2024, the Government would cut the basic rate of income tax from 20p in the pound to 19p which he said was “fully costed and fully paid for in the plans announced today”.
- The Chancellor said he would “stand by” households, and announced fuel duty would be cut by 5p per litre for a year up until March 2023.
- Mr Sunak said that “thanks to Brexit” he was able to remove VAT on materials such as solar panels, heat pumps or insulation to help bring down energy costs, as well as on wind and water turbines.
- He also said he is doubling the Household Support Fund to £1 billion “to do more to help our most vulnerable households with rising costs”.
- The Chancellor said he would publish a “tax plan” as he announced the national insurance contributions (Nics) threshold would rise by £3,000.
- Hoping to prompt a new “culture of enterprise”, Mr Sunak said there would be tax cuts “on business investment and innovation with final decisions to be announced in the autumn Budget”.
- The employment allowance for small businesses will rise to £5000, the Chancellor said.
- He told the Commons that The Office for Budget Responsibility has downgraded the growth forecast for this year to 3.8pc.
- But Mr Sunak said downgraded growth forecasts had “not affected our strong jobs performance” as he said unemployment was back to levels seen before the pandemic.
- The Government is “meeting all our fiscal rules”, Mr Sunak said, but he added the nation must prepare for “the economy and public finances to worsen, potentially significantly” because of the impacts of Russia’s invasion of Ukraine.
- The cost of borrowing is set to continue to rise. The Chancellor said £83 billion will be spent on debt interest, “the highest on record and almost four times the amount we spent last year”.
- Mr Sunak said underlying debt is expected to fall steadily from 83.5pc of GDP in 2022/23 to 79.8pc in 2026/27. He added borrowing as a percentage of GDP is 5.4pc this year, 3.9pc next year, then 1.9pc, 1.3pc, 1.2pc and 1.1pc in the following years.