Sunak’s opening remarks
Rishi Sunak opens by highlighting the war in Ukraine and says Britain’s economic strength underpins freedom and liberty. The chancellor says he will respond to the conflict by building a stronger, more secure economy for the UK.
“The actions we have taken to sanction Putin’s regime are not cost free for us at home. The invasion of Ukraine presents a risk to our recovery as it does to countries around the world,” he says.
Jessica Elgot, chief political correspondent: The invasion of Ukraine certainly puts an additional burden on the UK economy but consumers were already facing significant pressures from inflation and energy prices, as well as Sunak’s tax rise. Using the war in Ukraine to set the tone for the statement looks like the beginning of a strategy to at least partly attribute the pain of the cost of living to the crisis as a way of swerving political blame for the growth slowdown which was predicted well before Russia invaded.
Growth
-
The chancellor says forecasts from the Office for Budget Responsibility show the economy will grow by 3.8% this year.
-
GDP will grow by 1.8% next year, 2.1% in 2024, 1.8% in 2025, and 1.7% in 2026.
-
In October, the OBR had forecast growth of 6% f0r 2022 as the UK economy recovers from the Covid pandemic.
-
The economy grew by 7.5% in 2021, after a fall of 9.4% in 2020 – the biggest decline for a century – during the first wave of the pandemic.
Jessica Elgot, chief political correspondent: Sunak uses these figures as a way to emphasise the difficult choices made in the rest of the statement. Again, he links them directly to the Ukraine crisis, saying choices to sanction Putin’s regime were not cost free.
Cost of living
-
The chancellor says the OBR forecasts inflation will average 7.4% this year.
-
Fuel duty will be cut for only the second time in 20 years, by 5p a litre for a full 12 months.
-
Sunak says the fuel duty cut is worth £5bn and takes effect from 6pm on Wednesday.
-
The government will cut a 5% VAT rate for households installing solar panels, heat pumps, insulation to zero.
-
Sunak says he will double the government’s household support fund to £1bn.
Jessica Elgot, chief political correspondent: The cut to fuel duty was one of the only actions well trailed by Treasury sources ahead of the statement, after a concerted campaign by Conservative MPs and tabloid papers. But, in a nod to the divide still raging in the party, there is a net zero sweetener to the first fuel duty cut in years – a VAT cut to help households install energy efficiency measures.
Borrowing
-
Sunak says borrowing in the current financial year, 2021-22, will be 5.4 of GDP, and will fall to 3.9% next year.
-
In cash terms, the OBR estimates the budget deficit – the gap between spending and income – will be £127.8bn in 2021-22, and £99.1bn next year.
-
In its previous forecasts in October, the OBR had estimated borrowing would be 7.9% of GDP, or £183bn in cash terms, in 2022-23.
-
The chancellor says debt service costs will rise to £83bn in the next fiscal year, the highest level on record.
-
Public sector net debt is forecast to be 95.6% of GDP in 2021-22, and then fall gradually to 83.1% of GDP by 2026-27.
“We should be prepared for the economy and public finances to worsen potentially significantly,” he says.
Jessica Elgot, chief political correspondent: With higher than predicted receipts for the Treasury in a number of areas which have prompted lobbying for public spending, Sunak has continually stressed to MPs that the counter is the cost of the UK’s enormous borrowing, with March the third month in a row to break monthly debt interest records.
National insurance
-
Sunak says the planned 1.25 percentage point rise in national insurance contributions must remain, as a “dedicated funding source” for health and social care.
-
However, he announces he will increase the threshold by £3,000 this year, up from a planned rise of £300. This equalises national insurance contributions threshold with the personal allowance of £12,570.
-
He calls it a £6bn personal tax cut for 30 million people, and the largest single personal tax income in a decade.
Jessica Elgot, chief political correspondent: As welcome as the change to the threshold will be, particularly for middle-income families, Sunak’s claim that the national insurance rise is definitely hypothecated for health and social care looks dubious, given it looks like the funding settlement will not actually be reduced.
Business investment
-
Sunak announces reforms to research and development tax credits, saying the generosity of reliefs for business investment will be increased to boost UK productivity.
-
The chancellor says “something is not working” with UK investment in productivity.
-
He says the government will cut tax rates on business investment at the autumn budget.
-
The chancellor says he will increase the employment allowance for small businesses to £5,000 – a tax cut worth up to £1,000 for half a million small firms starting in two weeks’ time.
Jessica Elgot, chief political correspondent: One of Sunak’s mantras is the need to work towards a high-productivity economy. He is right to conclude that something is not working and promises more action at the autumn budget to cut business taxes, the first of a number of “jam tomorrow” promises to try to rebuild his image as a tax cutter.
Income tax
-
Sunak says the basic rate of income tax will be cut from 20% to 19% in 2024.
-
He says it would not be responsible to make such a tax cut right now, given the uncertainty in the economy.
-
“Tax cuts must be paid for, they must be prioritised and they must fit the economic circumstances of the time,” he says.
-
The chancellor says it will be the first cut in income tax for 16 years.
Jessica Elgot, chief political correspondent: First reported in the Guardian on Monday. Sunak has gambled that the fiscal position will be stable enough for him to start to cut taxes in the autumn. But there is likely to be significant scrutiny of the choices here – a 1.25% NICs rise, paid by workers, and a cut to income tax, paid by everyone.