Rishi Sunak slashed fuel duty, raised national insurance thresholds and promised a cut in income tax as forecast economic growth was downgraded.
23 March 2022
Rishi Sunak offered help through the tax system for millions of workers as the cost-of-living crisis and war in Ukraine hit the economy.
The Chancellor shielded lower earners from the impact of the forthcoming national insurance hike, cut 5p off fuel duty from Wednesday evening and promised to cut income tax by 1p in 2024.
But he acknowledged the impact of inflation, which is at a 30-year high, and the global economic uncertainty caused by Vladimir Putin’s invasion of Ukraine.
The Office for Budget Responsibility (OBR) downgraded growth in gross domestic product – a measure of the size of the economy – from the 6% forecast for this year at the time of the Budget in October to just 3.8%.
Next year’s growth forecast has been downgraded from 2.1% to 1.8%.
Inflation hit 6.2% in February, up from 5.5% in January, again reaching the highest level since March 1992, when it stood at 7.1%.
Mr Sunak said inflation was forecast to average 7.4% this year due to “disruptions to global supply chains and energy markets, combined with the economic response to Putin’s aggression”.
He said the UK’s actions against Mr Putin’s regime are “not cost-free for us at home” and present a “risk” to the recovery.
Mr Sunak said “it is too early to know the full impact of the Ukraine war on the UK economy” but the OBR acknowledged there was “unusually high uncertainty” around the economic outlook.
The cost-of-living crisis driven by rising fuel and energy prices was set to be exacerbated in April by the 1.25 percentage point hike in national insurance to fund the NHS and social care.
But 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.
Mr Sunak said it was “a £6 billion 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 70% of workers would have their tax cut by more than the increase coming in April.
And he promised further support in 2024 with a pledge to cut the basic rate of income tax from 20p in the pound to 19 – “a £5 billion tax cut for over 30 million people”.
But Paul Johnson, director of the Institute for Fiscal Studies think tank, said: “What is the possible justification for cutting income tax rate while raising NI rate?
“Drives further wedge between taxation of unearned income and earned income. Yet again benefits pensioners and those living off rents at expense of workers.”