Yesterday’s economic update was not a Budget, but with the cost of living soaring Rishi Sunak was facing calls to ease the squeeze. Did the chancellor rise to the challenge?
“We are in the worst position I have seen since I started being the Money Saving Expert back in 2000 for people’s pockets.”Martin Lewis speaking on Good Morning Britain
The cost of things like fuel, food and energy have been rising sharply.
“As the economy bounces back from lockdown, UK inflation jumped to 2.5 per cent in June, close to a three year high…”Reuters
“Inflation came in above expectations, 4.2 per cent in October year on year. It’s the third straight month that it’s above the Bank of England’s targets…”Bloomberg
“The consumer prices index for December was up 5.4 per cent compared with a year ago, prices for food, furniture and clothes went up…”You and Yours, BBC
And then, just hours before Rishi Sunak stood up to update MPs on the state of the economy, came the latest eye-watering number.
“It’s 8 o’clock on Wednesday the 23rd of March. The headlines this morning. Inflation has hit 6.2 per cent. The fastest rate for 30 years. The Chancellor is set to cut fuel duty…”Today, BBC Radio 4
One of the major things contributing to that 30 year high is the cost of household gas and electricity bills, which are due to go up when the price cap increases next month.
“On the 1st of April people are going to feel a fiscal punch in the face when that goes up for someone on typical use to £1,971. That’s a £700 rise.”Martin Lewis, ITV
And it could go up even further in October.
“Thankfully the October prediction from analysts has come down a little bit, but the prediction is still another rise to £2,500 and what that will mean is people will see a more than two fold and getting to three fold increase in energy bills. An absolute average increase just over a year of £1,300.”Martin Lewis, ITV
Yesterday morning, ahead of the chancellor’s mini-budget, Martin Lewis, the founder of Moneysavingexpert.com, issued a challenge to the chancellor. He tweeted:
“Dear Rishi Sunak, the UK is on the brink of a personal finance precipice. Today you, only you, have the tools to pull it back.”
So what did the chancellor offer struggling households – and will it be enough?
It’s worth remembering that Rishi Sunak had already announced a repayable £200 discount to help people in England, Wales and Scotland with rising energy bills.
There will also be an additional £150 council tax rebate for most households in England, with additional cash for the other UK nations to do something similar.
But there had been calls from people across the political spectrum for him to do more in his economic update to ease the pressure on people’s finances.
“I want to help people now, so I’m announcing three immediate measures… Fuel duty will be cut. Not by 1, not even by 2, but by 5 pence per litre. The biggest cut to all fuel duty rates ever. And while some have called for the cut to last until August, I have decided it will be in place until March next year.”Rishi Sunak
The RAC calculates that measure will reduce the cost of filling a typical 55-litre petrol car by around £3. And it may also have a small effect on the price of consumer products because it’ll help reduce transportation costs.
There wasn’t any additional help for people facing rising energy bills beyond what the chancellor announced earlier in the year, but Rishi Sunak said that for the next 5 years homeowners will no longer pay VAT on things that make your house more energy efficient.
That’s a big saving if you have the money to invest in solar panels or a heat pump.
He resisted calls from some within his own party and Labour to scrap the planned rise in national insurance, but did announce a change to the amount you have to earn before you start paying the tax.
“Our current plan is to increase the NICs threshold by £300 but I’m not going to do that, Mr Speaker, I’m going to increase it by the full £3,000. People will be able to earn £12,570 a year without paying a penny of income tax or national insurance.”Rishi Sunak
That will have the biggest impact on your finances, because it saves the average worker £330 a year. Enough to compensate for the coming rise in national insurance.
Here’s Martin Lewis again:
“If you earn £35,000 or less you will pay less NI than you do currently on the same income. If you earn £35,000 or more you will pay more NI than you do currently.”Martin Lewis, BBC 5 Live
That means around 70 per cent of people who pay national insurance will break even on the tax increase and drivers will save a few pounds every time they fill up their tank.
But as things stand, there’s little more to help people with the rocketing cost of energy and food.
Overall the Institute for Fiscal Studies says a middle earner on £27,500 a year can expect to be about £360 worse off this year. A full-time worker on the National Living Wage fares a little better, gaining £140.
So why didn’t Rishi Sunak go further?
When Covid-19 hit two years ago Rishi Sunak was the chancellor who promised to do whatever it takes to support people and businesses.
He was able to do that because the shock he was protecting us from was, mostly, a decision taken by the government to lock people down and temporarily close large parts of the economy. He had some certainty about the future.
This current crisis is different, because some of the forces pushing prices up are out of the government’s control. Something the independent Office for Budget Responsibility has acknowledged.
“The OBR has said specifically, there is unusually high uncertainty around the outlook. It is too early to know the full impact of the Ukraine war on UK economy.”Rishi Sunak
Energy prices could go up again in October. The Resolution Foundation reckons we could see a further rise of around 47 percent – equivalent to another £900 a year for a typical household.
All of this means the cost of living will continue to rise. This was the former boss of Sainsbury, Justin King, a few days ago.
“Well we’ve already seen a significant increase in prices, as you said, in excess of 5 per cent. I personally think it will get closer to 10 than 5 and I think it will last a deal longer than is generally the central view, certainly well into next year and probably through next year.”Justin King
Rishi Sunak has made a choice to wait and see. He will hope that it doesn’t get as bad as that, but if it does he still has some of the tools in reserve if times get tougher.
But despite the uncertainty, there is one thing he can be sure of… as chancellor he’ll preside over what the OBR says is the biggest fall in living standards since records began in the 1950s.
Today’s story was written by Lewis Vickers and produced by Imy Harper.
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