Britons face worst living standards plunge since the 1950s despite Sunak moves

Rishi Sunak is only unwinding a sixth of the eye-watering tax rises he has brought in since 2020 despite trumpeting his cutting credentials today.

The Treasury watchdog cast doubt on the Chancellor’s claim to be bringing in the ‘biggest net cut to personal taxes in over a quarter of a century’.

The OBR pointed out that in fact the changes to the National Insurance thresholds and penny off the basic rate by 2024 offset around a sixth of the planned increases.

The decision to go ahead with freezing tax thresholds despite skyrocketing inflation means that over the next three years 2.8million people will be dragged into paying tax, and two million into the higher rate. Last March the watchdog had predicted 1.3million and a million more respectively due to the policy.    

Huge amounts of revenue are being generated by making the arrangements for repaying student loans less generous – a policy that was slipped out on the same day Russia invaded Ukraine.

By the end of the forecast period the tax burden will be equivalent to 36.3 per cent of GDP, up from 33 per cent in 2019-20 and the highest level since the late 1940s.  

Meanwhile, measures announced since October to tackle the cost-of-living crisis will only trim a third off the fall in living standards the country faces this year.

The OBR still expects real household disposable incomes to tumble by 2.2 per cent per person in 2022-23 – the largest annual fall since ONS records began in 1956. 

The OBR’s assessment accompanying the mini-Budget said: ‘Net tax cuts announced in this Spring Statement offset around a sixth of the net tax rises introduced by this Chancellor since he took over the role in February 2020, and just over a quarter of the personal tax rises he announced last year (the freezing of the income tax personal allowance and higher-rate threshold and new health and social care levy). 

‘Those net tax rises, plus the more tax-rich composition of economic activity that has been factored into this forecast, raise the tax burden from the 33.0 per cent of GDP recorded in 2019-20 to 36.3 per cent of GDP in 2026-27 – its highest level since the late 1940s.’ 

The OBR said Mr Sunak was given a boost by forecasts of £37billion extra revenue in 2024-25 – the Government’s fiscal target year. 

Two-thirds of that was wiped out by higher spending due to increased inflation and interest rates. As a result he had £14billion of headroom going into the Spring Statement – and added to that by raising an additional £5billion from student loans, reducing the threshold for repayments.

He has handed out around half of the nearly £20billion he had in his warchest, according to the OBR, with the rest going on slashing borrowing.

‘In the process the Chancellor has undone just over a quarter of the overall value of the personal tax rises he announced last year and around a sixth of the overall net tax rises he has announced since becoming Chancellor,’ the OBR said. 

Offering a gloomy assessment that things could get even worse than its central forecast, the watchdog said: ‘We have assumed that the Russian invasion reduces global GDP growth by 0.5 percentage points in 2022. 

‘This adds to downside news since October from Omicron and persistent supply bottlenecks, taking our forecast for global growth in 2022 down a full percentage point from 4.9 to 3.9 per cent. 

‘But these headwinds are assumed to be temporary, with gas and oil prices falling part of the way back next year and global GDP returning to our October forecast levels by the forecast horizon. 

‘But given the unfolding situation in Ukraine, there is unusually high uncertainty around this outlook in both directions.’  

As the nation digests the government’s response to the mounting crisis:

Fuel prices have hit new record highs, with figures from data firm Experian Catalist suggesting the average cost of a litre of petrol at UK forecourts yesterday was £1.67, with diesel at £1.79; The respected IFS think-tank has warned that there is a limit to what the government can do to ease the problems because Britain is fundamentally ‘worse off’ after the pandemic;The Treasury Select committee has cautioned that low-income households are particularly vulnerable and while sanctions against Russia were necessary they will also exacerbate the situation;The head of the Iceland supermarket chain has said some people are turning down potatoes at food banks because they cannot afford to cook them.   

RPI inflation – which is used to calculate interest rates for much of the government’s massive £2.3trillion debt mountain – was 8.2 per cent in February in another sign of the threats Mr Sunak must balance. 

The OBR expects the government will be paying £83billion in debt interest during the next financial year, four times this year’s figure.

Although it suggested that inflation will peak short of double-figures, averaging 8.7 per cent in the fourth quarter – the watchdog admits the picture could yet deteriorate.

‘If … energy prices stay at current levels beyond the middle of next year, the UK would face a larger and more persistent increase in the price level and fall in real household incomes,’ the OBR said.

‘If prices fall more quickly than currently expected the reverse would be true.’  

Unveiling a mini-Budget for the cost-of-living crisis, the Chancellor declared that fuel duty will be cut by 5p until March next year to help Britons cope with soaring prices as he delivered his Spring Statement to the Commons.

In a bigger-than-anticipated move, he declared that the threshold for paying NICs will soar to £12,500 from July. He said was equivalent to a £6billion tax cut – half the value of the new social care levy that Labour, many Tories and businesses had been demanding he scrapped before it take effect next month. 

And he pledged that the basic rate of tax will fall by a penny to 19p by 2024 – the first cut in 16 years and worth £5billion. 

Mr Sunak also said he will scrap VAT on energy efficiency measures such as solar panels, heat pumps and insulation installed for five years. The Household Support Fund for struggling families is being doubled to £1billion.  

Mr Sunak gave a stark warning about the ‘challenging’ global outlook and said the government must take a ‘responsible and sustainable’ approach to its finances. 

He said that Britain was using its might to back Ukraine in the standoff with Russia, and even though sanctions are ‘working’ there was an impact on the UK’s recovery, with growth now only expected to be 3.8 per cent this year and inflation to average 7.4 per cent. 

However, Mr Sunak made an extraordinary claim that he was a tax-cutting Chancellor.

‘It is only because this government has been prepared to make those difficult but necessary choices to fix our public finances that I can stand here and tell this House that not only are taxes being cut, but that debt is also falling whilst public spending is increasing,’ he said.

‘We can deliver for the British people today and into the future.’

Shadow chancellor Rachel Reeves said Mr Sunak was ‘arguing with himself’ by offsetting the impact of the NI levy, and the Government’s plan did nothing for people on the edge of fuel poverty.  

Paul Johnson, director of the spected Institute for Fiscal Studies (IFS), said the £3,000 increase to the national insurance threshold would ‘more than compensate about 70 per cent of workers’.

But he voiced doubts the 5p off fuel duty would be in place for a year only, adding: ‘It hasn’t managed to increase even in line with inflation for more than a decade.’

‘And 5p not huge in context of prices up 20p+ per litre,’ he tweeted.

The package was announced after the pain for families was underlined with inflation hitting a new 30-year high of 6.2 per cent.

The figure for February is more than three times the Bank of England‘s target, and a peak not seen since March 1992. There are fears it will go even higher, possibly to double digits – but the Office for Budget Responsibility watchdog said today that it expected a peak of 8.7 per cent in the fourth quarter. 

Concerns have been raised that key goods such as chicken and wheat will see particular pressure due to global turmoil.    

In the Commons, Mr Sunak stressed the need to build ‘a stronger, more secure economy’ and keep the public finances on track.

‘We will confront this challenge to our values not just in the arms and resources we send to Ukraine but in strengthening our economy here at home,’ he is expected to say.

‘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.’

Earlier, Boris Johnson took PMQs and conceded there is a ‘real cost of living crisis’.

Pointing to the £9billion package put forward in February to ease energy bills, Mr Johnson said: ‘We want to do more.’     

Experts had warned that there is a limit to how much Mr Sunak can do to help Britons because the UK is simply ‘worse off’ after being hammered by the pandemic.  

In a grim summary of the state of play on inflation this morning, Office for National Statistics Chief Economist Grant Fitzner said: ‘Inflation rose steeply in February as prices increased for a wide range of goods and services, for products as diverse as food to toys and games.

‘Clothing and footwear saw a return to traditional February price rises after last year’s falls when many shops were closed. Furniture and flooring also contributed to the rise in inflation as prices started to recover following new year sales.

‘The price of goods leaving UK factories has also been rising substantially and is now at its highest rate for 14 years.’

Despite alarm at the economic slowdown and rising interest payments on government debt, Mr Sunak is promising more support for millions of people who are set to be hit hardest by increasing prices.

The NI rise has been branded ‘the worst-timed tax rise in history’.

But official figures yesterday revealed tax revenues are pouring into the Treasury again as the economy recovers from Covid. VAT revenues hit an all-time high, as did takings for other taxes including stamp duty and inheritance tax. 

That has helped slash government borrowing – which is likely to come in around £30billion less than forecast this year. 

The wave of inflation is also estimated to have given Mr Sunak a £12billion windfall after his decision to freeze tax thresholds for the coming years. Millions of people will be dragged deeper into the tax system as a result. 

Briefing Cabinet earlier, Mr Sunak said the economic outlook is ‘challenging given the global shocks we are facing as a result of the conflict in Ukraine and rising inflation’.

According to a Downing Street readout, he said that ‘throughout the pandemic, the government has shown the British people we are on their side and we will continue to stand by them through the uncertainty that we now face’. 

But he also pointed to the previous £9billion package of support for energy bills that was announced in February.

He said ‘this government would continue to take a responsible and sustainable approach in order to be able to grow a stronger, more secure economy for the future’.

The latest figures from the ONS revealed that inflation rose across 10 out of the 12 categories that feed into the index, with only communication and education not seeing increases.

Food prices have picked up as the global supply chain disruption and inflation pressures have begun to feed down to the supermarket shelves, with prices rising on a range of staple goods.

This is adding to already steep rises in petrol and energy prices, which have been hitting household finances hard.

But the ONS said the UK is ‘not alone’ in suffering surging costs, with Britain’s measure of CPI broadly in line with that seen in Europe, while it has been rising even faster in America – reaching 8.1 per cent in December.

The ONS said: ‘Many of the current drivers of this inflation are common across countries, with energy and fuel prices being subject to global market conditions and both the US and the UK seeing strong upward price pressure from used cars.’

A detailed look at the ONS data shows that among food prices rising the most, lamb continues to be high on the list, with annual Retail Prices Index (RPI) inflation of 12.4 per cent last month.

Fresh milk prices have also raced higher, up 10.1 per cent, with a 7.4 per cent rise for eggs, while processed vegetables and jams and sugar saw rises of 13 per cent and 12.4 per cent respectively.

Clothing and footwear was another category that suffered soaring inflation, with a record rise of 8.9 per cent on the CPI measure, and some of the biggest rises seen across womenswear, particularly trousers, dresses, short-sleeved tops and blouses, skirts, jeans and jumpers.

Families were also hit with price hikes for toys and games, including both computer games and more traditional toys, with CPI prices overall in the category rising by 4.2 per cent. 

Helen Dickinson, Chief Executive of the British Retail Consortium, said shops were so far ‘successfully managing to limit cost increases for many essential groceries’. 

‘Many supermarkets have expanded their value ranges to support individuals and households on lower incomes. Nonetheless, with retailers struggling to absorb these higher costs, shop prices look set to rise in the coming months,’ she said.

‘The situation in Ukraine is undoubtedly exacerbating existing cost pressures in the supply chain – from increased energy costs to higher global commodity prices. 

‘Many households will also face far higher energy bills and NI contributions from next Friday.’

Mr Sunak had hoped to move beyond huge one-off measures after he ramped up spending to soften the blow to Britain’s economy from the COVID-19 pandemic.

But the Bank of England’s prediction that inflation will soon surpass 8 per cent as energy costs spike prompted calls for more action. 

‘This is no cost of living squeeze… it’s outright strangulation’: Small business owners feel the pinch as inflation hits 30-year high 

Britons have reacted with fear at the intensifying cost-of-living crisis today as rising prices across the board sent UK inflation soaring to a new 30-year high in February.

The Office for National Statistics (ONS) said Consumer Prices Index inflation rose to 6.2 per cent in February, up from 5.5 per cent in January and again reaching the highest level since March 1992, when it stood at 7.1 per cent.

The rise was higher than expected and comes after prices lifted across food, clothing and footwear and a range of products and services – which are crippling businesses trying to fight their way back following the pandemic.

Among those concerned are Olga and Jovan Sipcenoka, who own a restaurant in St Albans, Hertfordshire, and said they are receiving calls ‘every week’ from suppliers raising prices. The couple, who have three children, added that the concerns about inflation are ‘crippling’ and that they are ‘preparing ourselves for a recession’.

Others raising fears today were Adam and Natalie Bamford, who own Derby-based firm Colleague Box, and said it was a ‘strange and complex time’ for the business amid a ‘frightening increase in household expenses’.

In addition, Mariona and Robert Bolohan, co-founders at London-based translation agency Lotuly, said they were ‘extremely worried’ about the impact of inflation and that the price increases were ‘getting out of hand’.

Here is what a selection of Britons have said today about rising inflation and concerns over the cost of living:

Olga and Jovan Sipcenoka, who have three children and own Per Tutti restaurant in St Albans, Hertfordshire

Olga: ‘As a family-run business, the worry about inflation is crippling and with each day that passes we can feel its impact on our bottom line.  Suppliers call every week with new price increases, which is really stressful. 

‘For now, we haven’t increased our prices as we have to be in line with our local competitors including some very big chains, and our current dilemma is how long we will be able to swallow the extra costs without passing them onto the customer. 

‘And if we do put prices up, how well will it be taken by our guests? Will they be able to afford to dine out as much as they do now? 

‘We are a family of five and these are really worrying times. We are preparing ourselves for a recession, as the UK economy is currently facing a perfect storm.’

Adam and Natalie Bamford, owners of Derby-based gifting company Colleague Box

Adam: ‘It’s a strange and complex time balancing the books of business and the frightening increase in household expenses. 

‘Having a business where both of the income earners rely on profits it’s an endless battle of increasing our product costs to ensure we take enough home each month just to cover the basics of living. 

‘When we created the business, we had the ambition of wealth building but we are now resigned to the lofty ambition of covering costs and ensuring our employees are paid each month. 

‘While business is currently very good, the costs going out the door are relentless and the increase in energy and National Insurance around the corner are another massive hurdle.’ 

Mariona and Robert Bolohan, co-founders at London-based translation agency, Lotuly

‘We’re extremely worried about the impact of inflation on our business. If people and businesses have less disposable income or money, that translates very quickly into reduced sales. 

‘The cost of living is increasing enormously and that means we are being forced to take on work that doesn’t pay enough just so we can cover our backs. 

‘This is such a vicious circle and it’s hard to get out of it especially as a small business owner without any outside help. 

‘I’d definitely suggest the Government start working on capping the cost of certain types of basic foods and also bills. 

‘The price increases we are seeing are getting out of hand, with some people reporting over £2,000 for gas/electricity in their next bill. Living with someone vulnerable makes these increases even harder to cope with.’

Jackie Mulligan, founder of the Shipley-based local shopping platform ShopAppy

‘This is no cost of living squeeze, it’s outright strangulation. The current trajectory of inflation poses an existential threat to independent retailers around the UK. 

‘If things carry on like this, the term profit margin will disappear from the English dictionary altogether. 

‘The thousands of bricks and mortar retail businesses we work with are having to cope with rising costs across the board at the same time as customers, understandably, are having to rein in their spending as their disposable income is being hit with a sledgehammer. 

‘Independent retailers already have five and a half times more debt than they had pre-pandemic, and the rate at which inflation is rising will push many off the high street altogether, impacting communities and people’s access to local services. 

‘In the absence of Government support, customers need to do whatever they can to support their local businesses. Use them or lose them.’

Lucinda O’Reilly, director at London-based The International Trade Consultancy

‘As a sole trader who works from home, many of my business and personal expenses are intertwined. 

‘I’ve been making efficiencies and cost reductions in terms of who and where I buy things from and also thinking really hard about how I do things in the most efficient way regarding energy use and car journeys. 

‘It takes time and energy away from focusing on growing my business and can be quite soul destroying after a while. 

‘But I’m one of the lucky ones, at least I don’t have to make the choice between eating or heating my home as many people are doing these days.’

Craig Bunting, owner of Derby-based coffee shop Bear

‘It’s hard to identify a cost that isn’t going up at the moment and, as a business owner, it’s a nightmare knowing when and how to act. It’s important to acknowledge the cost of living increases our customers are experiencing. This has to be taken into account when making business decisions. 

‘As a hospitality business owner, I believe the Government needs to do more for our sector, to support the jobs our industry creates and to protect against some of the incredible cost increases our businesses are seeing. 

‘VAT should remain at 12.5 per cent and the business rates burden should be an immediate priority for hospitality, leisure and tourism going into the spring and summer.’

Sarah Loates, of Derby-based Loates HR Consultancy

‘The economy is running hotter than a boiling kettle, and many of our clients, especially those in the manufacturing sector, are being crippled with rising energy and labour costs. 

‘As an HR consultancy, we don’t want to add to their woes by increasing our prices. 

‘It’s like being in a boat with a hole, where we prudently reduce our costs and bail out the water, while more water seeps in through the hole. 

‘Over the past three months we have seen our office lease, energy, salaries, IT, insurance and bank fees all increase. 

‘And that’s before the National Insurance increases in April. 

‘At some point we will have to increase our prices too, but we are reviewing our pricing model before we go down that route.’

Lee Chambers, a psychologist at Preston-based Essentialise Workplace Wellbeing

‘As a small business, we are agile and do what we can to mitigate cost increases. 

‘While we are well aware we have to play the hand we are being dealt, it’s challenging as there are a multitude of things incrementally creeping up, which puts pressure on those who work with us, and our clients’ bottom lines too. 

‘As dynamic and quick-moving as we can be, these things hit our bottom line very quickly and some of our clients are going through a tough time. 

‘I’m expecting double digit inflation and for the Bank of England to step in, but I’m not sure it’s going to make much difference. People are trying to stay hopeful but behind the scenes the uncertainty is horrendous.’

Shirley Leader, director of Petersfield-based woman’s clothing boutique Velvet & Rose

‘The increase in inflation is deeply worrying. 

‘Already as a small boutique owner, my energy bill is at a record high. 

‘On top of that, it is buying season and we are getting less for our money as fabric prices and duty have increased.

‘We absorb what we can, but at some point something will have to give.’

Ruth Bradford, of Bristol-based activity pack company The Little Black and White Book Project

‘With each day that passes, my concern about inflation is growing as people simply aren’t spending. 

‘As a consumer I totally get it, it’s not pretty out there, but as a business owner it feels like I’m on borrowed time.

‘All I can do is hope that the website traffic I am seeing does come back and convert at some point as people still seem to be largely browsing. 

‘It’s just so hard to predict anything right now and I can’t help feeling it’s just going to get worse.’

Jenny Blyth, owner of London-based gifting company Storm In A Teacup Gifts

‘The current level of inflation means people just don’t have spare cash to spend on things like gifts. 

‘Our sales have bottomed out, leaving a wake of stress and anxiety. 

‘This inflation is not just draining our pockets, it’s putting a high price on our mental health and that is something which is meant to be priceless. 

‘The Government needs to sit up and listen to our cries for help.’

Marianne Clarke, owner of Nottingham-based pet portrait and grooming company, Selston Groom and Train

‘Rising energy bills and the cost of living crisis mean we have stopped putting our heating on when we are cold. 

‘I now only use the heating to dry clothes. 

‘I wear my dressing gown on top of my normal clothes all the time unless I am working. 

‘The cost of everything just seems to be going up and up.’

Gillian Ferguson, of Scotland-based Twisted Empire Bakes

‘My profit margins are being obliterated. 

‘We’re now effectively making another mortgage payment for gas and electricity, while the energy companies are reporting record profits. 

‘You couldn’t print how I feel about this.’

Taxing jobs is the economics of the madhouse

By Alex Brummer, City Editor for the Daily Mail

The cost of living is soaring – filling up the car and buying food at the supermarket is becoming more expensive by the day, while a sharp hike in energy bills is imminent. 

With mortgage and borrowing costs also on the rise, the inflationary background to Rishi Sunak’s Spring Statement today could hardly be more stark. 

The Chancellor insists he will ‘stand by’ hardworking families. Here’s how he can achieve that while encouraging wealth creation and making Britain the high-skills, high-pay economy we all want it to be. 

The simplest way of easing inflation would be to consign to the dustbin the national insurance increase of 1.25 percentage points – forecast to raise £14billion in 2022-23 and designed to help clear the NHS waiting list and fund social care. 

Taxing jobs when the country faces rising prices and a potential slump – something that has followed almost every previous energy crunch – is the economics of the madhouse. 

Thanks to falling unemployment, receipts from self-assessment have soared by almost 22 per cent over the past 11 months, while income tax from those on payrolls has jumped by almost 14 per cent to £170billion – way ahead of last year’s £150billion. 

The NI hike may have looked necessary last September before the jobs market took off. It is not anymore. Another way is for Sunak to rethink the corporation tax rise. 

This is due to rise from 19 per cent to 25 per cent in 2023 in another effort to balance the budget. But lower corporation tax rates pay for themselves. 

In 2009-10, the levy stood at 28 per cent and receipts were just over £40billion. 

But in 2020-21, with the tax down to 19 per cent, receipts soared to almost £55billion – in spite of Covid. 

It’s a celebrated paradox: the lower the taxes, the greater the profit incentive and the more tax generated. 

Sunak also plans to incentivise companies to invest more by offering more tax breaks for Research and Development. No one could argue with that. But he needs to go much further and keep the headline rate competitive. 

And to ease the cost of living crisis, the temporary VAT cuts for hospitality introduced during Covid should be reinstated. 

Britain’s hospitality industry is still reeling from the pandemic and now inflation means that many customers will stay at home because of rising prices. 

Cutting the VAT on energy bills, a Labour Party proposal, could also help and release cash for spending elsewhere. 

As for fuel duty, the Chancellor’s suggested 5p cut per litre will help – but looks measly given the prices at the pumps. Sunak should also reform business rates. These are deeply unfair. 

As more sales have moved to the online giants, the burden on local shops and businesses has caused desolation on high streets. What is needed is a new ‘micro-charge’ added to every online sale. 

Meanwhile, during Covid, cutting stamp duty to 0 per cent on homes costing up to £500,000 helped both to stimulate deals and provide an unexpected 70 per cent boost to the Exchequer. 

Sunak should reintroduce the stamp-duty holiday to stimulate the market and encourage transactions. And finally, the Chancellor should encourage wealth creation. 

There is a tendency in Britain, particularly on the Left, to abhor dividends, bonuses and gains from entrepreneurship. 

But taxes on dividend income, capital gains and inheritance are critical to funding public services. We should be encouraging enterprise and entrepreneurship by making it clear wealth will not be penalised.