Chancellor's measures will help families feeling cost-of-living squeeze
- Credit: SIMON WALKER/HM TREASURY
This week we heard the chancellor’s Spring Statement, addressing the global challenges the international community is currently facing, as well as the domestic economic climate.
The Russian invasion of Ukraine is taking an immense humanitarian toll, with the conflict causing 10 million Ukrainians to flee their homes. The situation in Eastern Europe, with ongoing uncertainty regarding energy supply, is also taking a toll on economies across the continent.
Globally, we are facing challenges. These come in the form of rising cost of living, and inflation which has been exacerbated by energy insecurity. We are clearly in a difficult period, one which I know constituents will feel keenly. I am under no illusions that many will struggle with rising bills and costs. And no doubt this will continue to be the case for many of my constituents despite the actions outlined by the chancellor.
In the UK we are seeing 6.2% inflation. By comparison, the USA is seeing rates of 7.9% and the Eurozone is seeing 5.9% (Feb 2022). These higher rates have been driven by global factors, like disruption to supply chains in the pandemic and higher prices for energy and raw materials. The lifting of Covid measures significantly increased demand, which stoked costs for transport and energy. This inflation has implications for the cost of living here in the UK, which I know is something that will impact my constituents.
In light of the rising costs, especially of energy and fuel, I welcome the cut to fuel duty - the biggest cut to this tax to ever be announced. The cut to fuel duty is 5p per litre, and will be in place until next March. I hope the impact of this will be felt immediately by consumers, as it came into force on Wednesday evening. I and many of my colleagues signed a letter to the chancellor calling for a cut to this fuel duty, so it is good to hear this has been implemented.
The chancellor’s move to cut fuel taxes, as well as raising the National Insurance Tax threshold, will help the hard-working families who are feeling the squeeze. The threshold is increasing by £3,000 (from £9,568 to £12,570) meaning many workers will be £330 better off from July (even considering the rise in NI rates). All in all, two in three people will not see their NIT bills go up as a result and everyone who earns below £35,000 will be better off. Raising the threshold for National Insurance Tax is a move which Rishi Sunak said would ‘reward work’, as will reducing the basic rate of income tax.
The rise in NIT, while opposed by some at the time, is needed to fund the Health and Social Care Levy. This will raise £12billion, which is needed to tackle the NHS waiting lists which have been exacerbated by the pandemic. The NHS waiting lists clearly have to be addressed, and this does have to be paid for somehow.
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As it stands, although the Labour party attacks our plans to raise this money, they currently have no plan as to how they would do so. Labour seem to think we can borrow recklessly with no repercussions. And yet, we are paying £83billion a year on debt interest. Clearly, Labour’s borrowing would only see this figure increase. Reckless borrowing is not cost-free.
The chancellor also announced more funding for the Household Support Fund, giving local authorities more resources to help families with rising living costs. From his acknowledgement of the cost of living and inflationary pressures in his speech this week, it is evident that Labour’s claim that the government is unaware of the challenges is one which is baseless. This goes to show that the chancellor is not only aware, but actively trying to mitigate the costs. These measures by no means alleviate the financial difficulties entirely – it will be a difficult period for many families – but I appreciate the steps the government has taken so far to address the economic challenges.
At various points in the last two years, the chancellor has demonstrated the ability to respond to rapidly changing, uncertain circumstances. This flexibility will continue to be essential. The chancellor will have to be open to changes and actions given the volatility and exceptionalism of current circumstances, which perhaps necessitate taking significant intervention as and when the situation changes, even without the constraint of the usual bi-annual Budget structure.
I wrote last week in more depth regarding energy security and how important it is to have domestic sources, and not be reliant on potentially ‘rogue’ states for our oil and gas. In the Spring Statement, the chancellor announced that the government is producing a new plan on hydrocarbons, nuclear and renewable sources to safeguard our energy. On Wednesday in Parliament, the Prime Minister reiterated his commitment to energy independence in the UK, and using our domestic resources to achieve this.
As well as being independent in our energy sources, and reducing European reliance on countries like Russia, we must also continue pressing Putin’s regime with economic sanctions. Many British companies are ceasing trade in Russia. The government has targeted Russian banks, sanctioned Russian oligarchs, frozen assets, and introduced travel restrictions.
I was pleased to hear the chancellor restate our commitment to standing with Ukraine in his Spring Statement. Rishi Sunak spoke of our moral obligation to use our economic leverage to punish Putin’s regime: and as the chancellor explained today, it is working. The rouble has plummeted. The central bank of Russia has doubled their interest rates to 20%. Their stock exchange has been suspended for almost a month. It’s important that we continue to use our economic power to undermine Russian economic security and ensure Putin’s aggression does not go unpunished. From his speech this week, I think it’s clear the chancellor is looking ahead and carefully considering what might happen – and leaving scope for how much is uncertain, including how long the situation in Ukraine may go on for and what might happen next.
We can also be positive about rising employment and falling employment in the UK following the pandemic, demonstrating our strong recovery from the economic challenges caused by coronavirus. This just continues to show how much of an impact opening up our economy and getting back to normal has had on our national finances and employment statistics. We are now the fastest growing economy in the G7 – which demonstrates how important it was that we opened up the country when we did. I dread to think what situation we and our economy might be in if Captain Hindsight had kept everything locked up indefinitely. In comparison to the rest of Europe, we have done particularly well. At the end of last year, our GDP grew more than the Eurozone; compared to growth in the UK, the German economy even declined by 0.3% in the last quarter of 2021.
From my visits to local businesses in Ipswich, it is clear that the pandemic had a significant impact but, equally, that business is has bounced back so far in 2022. I have visited a variety of businesses across Ipswich, and seen how Ipswich residents are getting out and supporting the economy. The chancellor is doing more to support small businesses, to make sure this growth continues. In his statement this week, Rishi Sunak announced an increase in the employment allowance, which means a £1,000 tax cut for millions of small businesses.
Overall, this Spring Statement from the chancellor shows that there are some challenges ahead. The international scene remains uncertain. But in the face of this, the chancellor has announced measures to help families who are feeling the cost of living squeeze.