Rishi Sunak is planning to set aside a large part of a windfall in UK public finances this year, risking a backlash from Tory MPs who want the chancellor to use all funds available to cushion the cost of living crisis hurting British families.
The official forecasts in the Spring Statement will show the deficit is at least £20bn better than expected this year, but Sunak will use only some of the money to help households facing soaring gas, electricity, and fuel bills.
Sunak will instead highlight the importance of “more resilient public finances” as he worries about a surge in the cost of servicing government debt instead of spending the entire windfall.
He is set to say he will “stand by” families, with a cut in fuel tax expected to be part of new measures he will announce on Wednesday.
His speech will focus on the theme of “security” as he offers Britain’s “unwavering” support to Ukraine amid a promise to continue supplying weapons and aid to the war-stricken country.
Many Tory MPs are pushing for bolder fiscal action, including cutting taxes or reducing the impact of the planned 1.25 percentage point rise in national insurance contributions, which takes effect next month and is intended to raise £12bn for the NHS and social care. Some want Sunak to ditch the measure altogether, although a second choice would be to increase the threshold at which people pay NICs from £9,600 to the income tax threshold of £12,500.
Iain Duncan Smith, a former Conservative leader, said Sunak had “headroom” and should use the fiscal good news this year to pump money into the economy to avoid “stagflation” — when prices rise amid a recession.
“He should act boldly and decisively,” Duncan Smith said, adding that the chancellor should either scrap the national insurance rise or raise the threshold. “By the autumn it could be too late.”
Official figures on Tuesday showed a £13.2bn downward revision in borrowing, putting the government on course to release more than £20bn for new one-off measures to help households.
Robert Halfon, a longstanding campaigner against increases in fuel duty, said: “Boris and the chancellor should make it their defining domestic mission to use this windfall to cut the cost of living for workers — not just for this emergency situation but for the long term.”
The Treasury is nervous about these demands and worries that higher inflation in 2022-23 and higher interest rates will raise the forecast cost of servicing debt by more than the extra tax revenues it will receive. However, forecasts for the 2024-25 financial year are set to show an improvement in borrowing because additional tax revenues will outweigh the higher cost of servicing debt.
Sir Charlie Bean, a former member of the Office for Budget Responsibility’s forecasting team, nevertheless said he expected the chancellor to have significant “wriggle room” in the public finance forecasts to help households.
Sunak is also expected to announce a shake-up of training in an attempt to raise the country’s skills levels and growth potential, including a review of the operation of the apprenticeship levy.
He will argue that providing incentives to the private sector to carry out more training is part of a plan to create “a new culture of enterprise”, including a new regime of tax breaks to boost investment and innovation.
Last month the chancellor said he feared the apprenticeship levy was not doing enough to “incentivise business to invest in the right kinds of training”. Most new measures will be introduced in his autumn Budget.
Source: Financial Times