Rishi Sunak Faces Mounting Pressure to Cut Taxes Amid Cost of Living Crisis

Strategic Insights -

As the economic fallout of the war in Ukraine hits home, Chancellor Rishi Sunak is facing mounting pressure from Conservative MPs to cut taxes and provide relief to households struggling with the worsening cost of living crisis. Despite Treasury fears that inflation could rise above 7% in May, cabinet ministers believe Sunak will have to yield to pressure to offer new help to households. The Chancellor is determined to resist demands to scrap a planned £12bn rise in national insurance contributions, fearing it could push inflation even higher. Sunak's argument is that the situation is "too volatile" to make big fiscal judgments now, given the uncertain effect of western sanctions against Russia.

Key Takeaways:

  • Rishi Sunak faces mounting pressure from Conservative MPs to cut taxes and provide relief to households struggling with the cost of living crisis.
  • The Chancellor is determined to resist demands to scrap a planned £12bn rise in national insurance contributions, fearing it could push inflation even higher.
  • Treasury fears that inflation could rise above 7% in May, amid the economic fallout of the war in Ukraine.
  • Sunak believes the situation is "too volatile" to make big fiscal judgments now, given the uncertain effect of western sanctions against Russia.
  • The energy price cap, which rises in April to £1,971, will offer households some protection until the next cap is set in October.
  • Labour and some Conservatives are opposing the planned £12bn rise in national insurance contributions, which is intended to fund NHS treatment and social care.
  • Robert Halfon, a Conservative MP, is calling for a cut in value added tax or fuel duty as oil prices surge and petrol rises above £1.50 a litre.
  • Tobias Ellwood, Tory chair of the Commons defence select committee, is calling for a defence spending increase to 3% of GDP, citing the need for flexibility in response to growing global threats.

Statistics:

  • The fiscal deficit for 2021-22 is expected to be around £20bn lower than the Budget estimate.
  • Government receipts were £29.1bn higher than expected in the 2021-22 financial year, with self-assessment receipts in January contributing to the strong performance.
  • The overall deficit for 2021-22 looks likely to be around £20bn lower than the Budget estimate.
  • The government has had to spend £8.8bn more than expected on servicing the national debt due to increased borrowing costs and higher inflation.
  • Inflation is expected to rise above 7% in May, according to Treasury fears.

Sources:

  • The Treasury
  • The Office for Budget Responsibility (OBR)
  • HM Revenue & Customs (HMRC)
  • The Institute for Fiscal Studies (IFS)
  • The Institute for Fiscal Studies thinktank
  • Isabel Stockton, research economist at the Institute for Fiscal Studies