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RISHI Sunak was hoping to present a forgettable Spring Statement, returning the Autumn Budget to its rightful position as the Government’s flagship fiscal event. Unfortunately for those struggling with today’s cost of living crisis, that is what he delivered.
The 1p deferred cut in the basic rate of income tax is a white rabbit of sorts - and to his credit it was leaked minutes not days before the Chancellor got to his feet. In reality, however, it would barely make a dent in surging energy, fuel and food costs even if it were implemented today.
The fact that it remains two years off will make it hard to convince those who are just about managing that he has their back.
In the context of the imminent rise in household gas bills and the higher costs of petrol and the weekly shop that are already being felt, a £300 tax cut for someone earning £30,000 a year really does feel like a rearrangement of the deck chairs. Cutting fuel duty by 5p a litre is the right thing to do but again it hardly scratches the surface of the recent surge in prices on the forecourts. It is less than 10% of the duty currently paid by motorists.
In light of the inflation-fuelled improvement in the public finances compared with expectations last autumn, this all felt like pretty small beer.
The increase in the National Insurance threshold in line with that for the basic rate of income tax is a sensible tidying up of an unnecessarily messy personal tax system, and the £330 benefit targeted at lower to middle earners will have an immediate impact.
A risk for this self-styled tax-cutting Chancellor is that equalising the income tax and NI regimes could remind lower earners that the bottom rate of tax in Britain is 32% not 20% - and 41% if you are a recent graduate.
Resisting calls to delay or cancel the forthcoming NI hike will push this basic rate even higher. The change to the NI threshold is a distraction from the fact that next month this tax will rise by 1.25 percentage points.
The Chancellor skipped over the economic update that is the raison d’être of the Spring Statement, and for good reason. It makes for ugly reading. The Office for Budget Responsibility reduced its forecast for growth this year from 6% to 3.8%. And we already know from the Bank of England that this morning’s inflation hike to 6.2% is just a down payment on further rises to perhaps 10%.
The measures taken today will do nothing to fend off that stagflationary set-up - and to be fair to Mr Sunak there is almost nothing he can be expected to do to prevent rising prices and an economic slowdown. He has been dealt a very weak hand by events.
For UK investors, today’s statement changes nothing of consequence. Consumers feeling the pinch will still be looking for ways to curtail their spending. And that means that the outlook for the UK economy is tough: rising prices, stagnant growth and rising taxes and mortgage costs.
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