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by Alain Tolhurst
23 March 2022
Spring Statement: Rishi Sunak cuts fuel duty to ease cost of living crisis

Spring Statement: Rishi Sunak cuts fuel duty to ease cost of living crisis

The Chancellor Rishi Sunak has announced a cut of five pence a litre in fuel duty to help tackle the cost of living crisis.

Delivering his Spring Statement in the House of Commons, he said it will come into force from this evening and will last for a full year.

He told MPs: “First, I’m going to help motorists. Today I can announce that for only the second time in 20 years, 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 – a full 12 months.

“Together with the freeze, it’s a tax cut this year for hard-working families and businesses worth over £5bn. And it will take effect from 6pm tonight.”

The Treasury said this will mean savings of £100 for the average car driver, £200 for the average van driver, and £1,500 for the average haulier.

It was one of three announcements Sunak made as he said the UK government wanted people to know they will “stand by them” as the cost of living crisis deepens, exacerbated by the Russian invasion of Ukraine.

The Chancellor revealed VAT will be reduced from 5 per cent to zero on materials such as solar panels, heat pumps and insulation in a bid to help homeowners install more energy saving materials.

“We'll also reverse the EU's decision to take wind and water turbines out of scope - and zero rate them as well,” he said.

“And 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.”

Sunak also said 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.

But it was criticised by the consumer campaigner Martin Lewis, who tweeted: “If that's all he's doing on energy - it is limited and won't impact the majority of households who will see a likely £1,300 average increase in year-on-year bills by October.”

And poverty campaigners in Scotland said the Chancellor had failed to understand the scale of the cost of living crisis.

Elsewhere, Sunak also said the threshold for paying National Insurance will increase by £3,000 from July, amid criticism of the 1.25 per cent increase coming in next month to fund the Health and Social Care Levy.

The basic rate of income tax will also be cut by 1p in the pound in 2024, which the Treasury says is worth £5billion for workers, savers and pensioners - and will be the first reduction in the basic rate in 16 years.

The Chancellor also set out a series of measures to help businesses boost investment, innovation, and growth – including a £1,000 increase to Employment Allowance to benefit around half a million smaller firms.

He had been under increasing pressure to go further in helping households through the cost-of-living crisis after new figures released this morning showed inflation rising to a 30-year high.

The CPI rate has hit 6.2 per cent in the 12 months to February thanks to increased energy costs along with food and goods prices soaring, according to the Office for National Statistics.

Sunak said it also predicted to carry on rising, citing the Office for Budget Responsibility (OBR), who now estimate inflation will average 7.4 per cent this year.

Because of this and other factors such as supply chain pressure, the OBR have downgraded growth forecasts from 6 per cent this year back in October to just 3.8 per cent for 2022.

They warned “there is unusually high uncertainty around the outlook”, while Sunak said it is “too early to know the full impact of the Ukraine war on the UK economy”.

He told MPs: “The OBR then expect the economy to grow by 1.8 per cent in 2023, and 2.1 per cent, 1.8 per cent and 1.7 per cent in the following three years.”

In its report on the Spring Statement the OBR said: “With inflation outpacing growth in nominal earnings and net taxes due to rise in April, real livings standards are set to fall by 2.2 per cent in 2022-23 – their largest financial year fall on record – and not recover their pre-pandemic level until 2024-25.”

Earlier Sunak pledged to “stand by” families to help them weather the crisis, but was branded the “high-tax Chancellor” by Labour, who were urging him to scrap entirely the hike to National Insurance.

Meanwhile, fuel prices have also hit new record highs, with data firm Experian Catalist publishing analysis suggesting the average cost of a litre of petrol at UK forecourts on Tuesday was £1.67, with diesel at £1.79.

The Chancellor also linked strengthening the UK economy to opposing Russian President Vladimir Putin's invasion of Ukraine, telling the Commons: “So when I talk about security, yes, I mean responding to the war in Ukraine.

“But I also mean the security of a faster-growing economy, the security of more resilient public finances, and security for working families as we help with the cost of living.”

The invasion of Ukraine has exacerbated existing rising wholesale gas prices, fuelled by a post-pandemic rise in demand.

He also said underlying debt is expected to fall steadily from 83.5 per cent of GDP in 2022/23 to 79.8 per cent in 2026/27.

Borrowing as a percentage of GDP is at 5.4 per cent this year, but is forecast to fall to 3.9 per cent next year.

Sunak had perviously announced a £200 loan for gas and electricity payments from this October, while certain households will get a £150 council tax rebate in April.

But he had been criticised for not going far enough, prompting him to add further measures to the Spring Statement, which had originally meant to be only a technical update on the nation’s finances.

In response, the shadow Chancellor Rachel Reeves said: “Today was the day the Chancellor could have put a windfall tax on oil and gas producers to provide real help to families. But he didn’t.

“Today was the day for the Chancellor to set out a plan to support businesses and create good jobs. But he didn’t.

“Today was the day he could have properly scrapped his national insurance hike. But he didn’t.”

The Labour frontbencher told the Commons “for all his words, it is clear the Chancellor doesn’t get the scale of the challenge”, saying his choices “are making the cost of living crisis worse - not better”.

Finance secretary Kate Forbes tweeted that there was “nothing” in the Chancellor's statement which would reduce fuel bills or uprate benefits for struggling families.

Peter Kelly, director of the Poverty Alliance, an independent organisation with 350 members in Scotland, said: “Government should be about compassion and justice, and making sure people are able to live as full a life as they can.

“The Chancellor said his Spring Statement today was all about security. Yet his plans show a failure to comprehend the situations being faced by households across the country, leaving them with insecure and falling incomes in the face of rising costs.

“By ignoring the tidal wave of rising living costs that is pulling so many people into poverty, the Chancellor has made clear his priorities. His tax-cutting agenda will generate positive headlines, but could see another 400,000 people across the UK swept into poverty. Ultimately, the Chancellor’s statement is a failure of courage, a failure of compassion, and a failure of justice.”

A spokesperson for the Scottish Chambers of Commerce said: “With inflation running at a 30-year-high businesses wanted to see the Chancellor take real action to tackle the escalating cost of doing business in a crisis.

“Whilst there were various measures for businesses to welcome in the spring statement including the 5p cut to fuel duty and the increase in the National Insurance threshold, the Chancellor should have gone further to help Scotland’s businesses recover.”

Read more at Politics Home

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