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The chancellor faces increasing demands to deal with the effects of inflation and the effects of the invasion of Ukraine
Rishi Sunak is under pressure from Conservatives and the opposition to turn this week’s spring declaration into an interventionist mini-budget to address the cost of living and the impact of the Ukraine war. These are the key issues:
Labor and Conservative MPs are pushing for April’s planned increase in national insurance to be delayed or scrapped. Announced by Sunak and Boris Johnson last autumn to raise funds for the NHS and social care, it is expected to generate £12bn. The couple used a joint letter to a Sunday newspaper to commit to politics. This could make it politically difficult to reopen the issue. Calls to remove it have multiplied given the worsening of the UK cost of living crisis and a stronger-than-expected performance for the economy and government finances in recent months.
Benefits generally increase in April based on the previous September’s rate of inflation, which was 3.1%. Experts say that while the system works when inflation is stable, the recent increase in the cost of living calls for a larger increase. The Bank of England says inflation could hit 8% this April.
Raising benefits by more than planned could be an embarrassing U-turn for the Chancellor, who staked his reputation on a £20-a-week cut in Universal Credit last October, despite warnings of mounting pressure on homes.
The rise in oil prices since the Russian invasion of Ukraine has pushed the price of gasoline to record highs. Conservative MPs are pushing for a tax cut. Fuel tax is 57.95 pa litre, plus 20% VAT. The Conservatives have frozen the fuel tax for 12 years, but campaigners say this clashes with net-zero ambitions.
Concerns about energy security have fueled calls for more domestic production. Some Conservatives want new investment in shale gas, or relaxed net-zero rules for North Sea oil or coal-fired power. Labor wants a windfall profits tax for energy producers, who have benefited from high prices, with the profits going to support vulnerable families.
Senior Conservatives, including former cabinet minister Jeremy Hunt, urged Sunak to increase defense spending after the Ukraine invasion. Germany is creating a fund of 100,000 million euros to strengthen its armed forces. The UK spent 2.3% on defense in 2021, Germany 1.5% and the US 3.5%.
Bosses are pressing Sunak for tax and spending plans to encourage business investment. The UK is lagging behind on this: it crashed after the Brexit vote and again in the pandemic. Despite Sunak’s “super deduction” tax break, investment is expected to fall again in 2022. The CBI has called for a permanent tax deduction on investment to encourage companies to spend, which could offset plans. increase in corporate tax from 19% to 25%. from April 2023. Economists suggest higher rates of business investment could help boost UK economic productivity after stalling progress in recent years, helping lift the rate of economic growth and living standards .