Rishi Sunak is expected to use his spring statement on Wednesday to announce measures to support UK households with growing challenges from the cost of living emergency and the war in Ukraine.
Here are the key points to look out for from the chancellor’s update.
Economic outlook
Sunak will present new forecasts from the Office for Budget Responsibility (OBR), with expectations for a weaker economic outlook as high inflation erodes consumers’ spending power.
The consultancy Capital Economics expects a downgrade for GDP growth in 2022 from the 6% forecast in October to about 3.5%.
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Most attention will focus on the cost of living squeeze and workers’ pay. The Bank of England forecasts inflation will reach 8% this April, with a possible peak close to 10% later in the year.
Public finances
Recent stronger tax receipts mean the OBR is expected to forecast a substantial improvement for the public finances this year, possibly worth about £30bn compared with estimates made in October for borrowing of £183bn in 2021-22.
Though the improvements could hand Sunak room to support families with living costs, he has also committed to reducing the deficit and national debt as a percentage of GDP. The chancellor is also likely to warn that high inflation adds to debt servicing costs.
National insurance
Sunak and Boris Johnson have previously insisted a planned 1.25 percentage point increase in national insurance contributions for workers and their employers will not be jettisoned. However, some reforms to national insurance could be likely under heavy pressure from Conservative backbenchers.
Sunak could choose to defer the increase planned for this April. Another option would be to raise the threshold at which workers start paying national insurance to help those on the lowest incomes.
Fuel duty
Anticipation is building that Sunak will cut fuel duty, possibly by as much as 5p, in response to surging pump prices since Russia’s invasion of Ukraine.
Fuel duty is 57.95p a litre, plus 20% VAT. The Conservatives have frozen fuel duty for 12 years but campaigners say this clashes with net zero ambitions.
However, petrol and diesel have risen by more than 40p and 50p compared with a year ago. The Resolution Foundation estimates a 10p fuel duty cut would cost about £5bn while only reversing around a quarter of the past year’s rise.
Universal credit
The chancellor has faced calls to raise the value of universal credit by more than planned to support poorer households.
The value of benefits is planned to rise by 3.1% in April, based on September’s inflation rate. However, the Bank of England forecasts inflation could hit 8% this April. Sunak cut universal credit by £20 a week in October, although he made some changes to expand the benefit.
Should he take action, the chancellor could argue a bigger increase this year should warrant a smaller rise or even a freeze in 2023.
Business support
Bosses have pushed Sunak to incentivise business investment and to help firms with high energy costs.
The CBI has lobbied the chancellor to turn his “super deduction” – which offers tax savings on business investment – into a permanent deduction to encourage firms to spend. The business group says this is necessary to offset a rise in corporation tax from 19% to 25% planned from April 2023.
The Treasury is expected to launch several consultations on Wednesday ahead of taking action at the autumn budget.
Energy Support
Sunak could expand the £9bn package of energy support announced last month. A temporary VAT cut on energy bills – potentially funded by a windfall tax on oil and gas companies – could be used, as pushed for by Labour – although it is thought to be unlikely.
Existing measures
Government sources have attempted to downplay the significance of the spring statement, saying measures worth £21bn this year and next have already been announced to help with living costs. The government is also raising the minimum wage from £8.91 to £9.50 an hour from April.
While energy prices will rise sharply in April, household gas and electricity bills will then be frozen until October. Sunak could argue his existing schemes are enough for now, with time to assess if more help is warranted later in the year.
However, holding back could be politically costly as the squeeze on households intensifies.
