© Reuters. FILE PHOTO: British Chancellor of the Exchequer Rishi Sunak speaks at Conservative Party Spring Conference in Blackpool, Britain March 18, 2022. REUTERS/Phil Noble
By William Schomberg
LONDON (Reuters) -Finance minister Rishi Sunak will aim to show on Wednesday that he is helping Britons through the worst cost-of-living squeeze in decades while keeping his powder dry for bigger tax cuts before the next election.
Sunak is due to give a budget update at around 1230 GMT and he will add to the support he gave households only last month, since when energy prices have been propelled even higher by Russia’s invasion of Ukraine.
A few hours before his speech to parliament, data showed Britain’s consumer price index hit a new 30-year high of 6.2%.
Analysts say the former Goldman Sachs (NYSE:GS) analyst and hedge fund partner has 20-30 billion pounds of wiggle room within his fiscal rules, enough to build on the 9 billion pounds he offered last month to smooth out the hit from residential energy bills.
Sunak had hoped to move beyond huge one-off measures after he ramped up spending during the COVID-19 pandemic, and focus instead on putting the public finances on a sustainable footing.
But the prospect that inflation will soon surpass 8%, higher interest rates and a rise in payroll taxes from April have prompted calls for more action to help poor and middle-earning households, including from within his own Conservative Party.
“The chancellor should use this additional fiscal firepower to bring forward support for those on the lowest incomes,” Mel Stride, the Conservative chair of the Treasury Committee in the lower house of parliament, said.
The finance ministry said Sunak would outline further plans to help with the rising cost of living.
Options include a fuel duty cut similar to measures taken by other European governments who are also struggling to contain the inflation impact on their economies, pushing up the threshold at which people start to pay into the social security system, and ensuring welfare payments keep up with inflation.
Tax revenues from value-added tax and higher earnings have recently increased, but that is partly down to higher inflation that will soon slow economic growth and add to the government’s debt costs.
Paul Johnson, director of the Institute for Fiscal Studies think tank, said suggestions that the Treasury was awash with cash on the back of higher revenues were an illusion.
“Real growth is down, interest payments are up and real public spending will be less than intended,” Johnson said on Twitter (NYSE:TWTR). “An energy price shock makes us worse off. Sorry.”
The opposition Labour Party has called for a windfall tax on energy firms which have seen their profits soar.
SPENDING DEMANDS MOUNT
Sunak is facing multiple demands for more spending, ranging from increases in public-sector workers’ pay to make up some of the inflation hit to beefing up Britain’s armed forces in response to the Ukraine crisis.
In an excerpt of his speech released by the finance ministry he said that on the issue of security, he would respond to the war in Ukraine.
But he also wants to keep room in the budget to back up his pledge to make future tax cuts a priority, which would help restore a core tenet of the Conservative Party in time for the next general election, currently due in 2024.
The government’s tax take as a share of the economy is on course to become the biggest in 70 years as it seeks to fill the huge hole in the public finances caused by Sunak’s pandemic spending and growing demands for health and social care.
Businesses are also seeking support to offset the hit to them from the leap in energy prices.
Sunak has refused to heed their calls to suspend April’s social security increase.
The finance ministry said he would announce plans to create a “new culture of enterprise” through increased training, investment and innovation.
UK’s Sunak under pressure to ease cost-of-living squeeze