Will Sunak’s mini-budget protect households from a cost of living crisis?

Written by Kunal Sawhney, CEO, Kalkine Media

The much-awaited Spring Statement of Chancellor Rishi Sunak was on expected lines. However, the prevailing economic situation demanded more, and Prime Minister Boris Johnson had to step in with a hint that more help for hard-pressed families was on its way.

First, let us see what the major respite was given in the mini-budget and what could be the impact.

  • A temporary duty cut on petrol and diesel of 5p per litre was announced for 12 months period- Government estimates that the measure would allow a saving of £100 for the average car driver, £200 for the average van driver, and good around £1500 for the average haulier.
  • The annual National Insurance Primary Threshold and Lower Profits Limit has been raised £12,570 from £9,880, effective July 2022- It is estimated that around 30 million working people will benefit from the measure with an effective tax cut of £330 in the year.
  • In the first in 16 years, the basic rate of income tax has been reduced by 1% to 19% from April 2024- It is estimated that the tax cut would be over £5 billion a year.

Other than that, measures to enhance investment, innovation, and growth has been announced in the Spring Statement. Small and Medium Enterprises (SMEs) are going to get the benefit of a £1,000 increase in Employment Allowance from £3,000 to £4,000. Also, there is a provision for eligible employers to save on NICs bills by up to £5,000 per year.

The government’s decisions are based on steady growth in the economy and the robust position of public finances. It is assumed that the measures will benefit the lowest-income households the most while placing the largest burden on higher-income households.

Why more needs to be done?

The government has said that it has taken significant steps to help with the cost of living, but if we go by the survey of the Resolution Foundation and Institute for Fiscal Studies, more could have been done to protect the households from continuously rising costs. With the escalation of war and various sanctions on Russia, the inflation levels are expected to touch a record high of 8% by the end of the year. Inflation of that level would negatively impact GDP growth, pulling it from 6% to 3.8% by eroding real incomes and consumption.

The Office for Budget Responsibility (OBR), in its economic and fiscal outlook, has said that if wholesale energy prices continue to remain high, energy bills that are all set to see a hike of 54% in April will see another 40% surge in October. It has further stated that the household disposable incomes per person will fall 2.2% in real terms in 2022-23, due to inflation outdoing hike in wages.

How have other nations been tackling the energy price rise?

Inflation has become a global concern, and different governments have announced much more serious measures to help those dealing with energy price hikes than what was announced in the UK’s Spring Statement. Germany had announced a €13 billion package to support households from the surge in energy prices. France had announced a limit on the gas price increase to 12.6% apart from limiting the power costs increase to 4%. Spain had cut several taxes and is planning €2.6 billion through a tax on the increased profits made by energy companies. Italy has spent €8 billion to curb hikes in retail energy bills.

The government has been making efforts to reduce the hardship of the households, but the fact is that Britons have been facing the worst cost of living crisis for decades. Average earnings have fallen, and the tax burden will rise as a percentage of GDP. If the cost of living remains at an elevated level, millions will be pushed into poverty, hence more is required as government support.

About Lisa Baker, Editor 2391 Articles
Lisa Baker is the Editor of Always Finance, and writes about Business, Finance Technology and Healthcare. Lisa is also the owner of Need to See IT Publishing.