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Rishi Sunak could introduce 1p income tax cut this year

Daily Mail logo Daily Mail 17/05/2022 Henry Martin For Mailonline

Rishi Sunak is considering bringing forward a 1p income tax cut and increasing the warm home discount by hundreds of pounds amid urgent calls for the Government to tackle the cost of living crisis. 

Conservative MPs are urging the Chancellor to take action as quickly as possible to help households struggling with rising prices.

The Office for National statistics recorded inflation at 7% in March and on Wednesday it is expected to unveil a figure of 8% for April, while the Bank of England has said inflation is likely to peak at 10.25% during the final quarter of 2022.

Rishi Sunak and his Treasury ministers have suggested new measures to help ease cost-of-living pressures are being developed but will not be introduced imminently, i news reports.

The warm home discount will give three million of England and Wales' poorest homes £150 off their bills from October, but Treasury officials have also drawn up plans for a one-off increase of £300, £500 or possibly £600 to battle rising energy prices, The Times reports. 

The extra measures could cost more than £1 billion and would be directly funded by the government, instead of being levied on energy bills as under the current system. 

Sunak is reportedly drawn to this approach partly because there is a lower risk of it becoming permanent. 

Also, the basic rate of income tax cut from 20p to 19p is set to take effect in April 2024, but Treasury sources said Mr Sunak is thinking about bringing it forward by one year, announcing it at the Budget in the autumn. 

Officials are now said to be looking into deficit projections from the Office for Budget Responsibility to figure out if the change would be affordable. 

Conservative MPs are urging the Chancellor to take action as quickly as possible to help households struggling with rising prices © Provided by Daily Mail Conservative MPs are urging the Chancellor to take action as quickly as possible to help households struggling with rising prices

More than £5bn would be added to Britain's deficit – meaning a rise in net borrowing of roughly 10 per cent – but could still allow the Government to adhere to its fiscal rules, according to current forecasts.

Chief Secretary to the Treasury Simon Clarke said the Chancellor will bring forward a programme of measures at a time when they will 'make the right difference in a targeted way'.

Mr Sunak later said he 'stands ready to do more' but said this is part of a 'broader plan'.


Video: Sunak on 'anxious times' for economy (Sky News)

After SNP MP Stephen Flynn (Aberdeen South) pressed about the UK Government's levelling-up programme, Mr Clarke told the Commons: 'Levelling up is a social and moral mission, and I believe very strongly that it's vital we close the gap between the most successful parts of the UK and the rest; I represent a constituency which sits at the heart of that process.

'To his point on the cost of living, we've put together a £22 billion package of support - including a £9 billion commitment specifically on energy bills.

'But we're absolutely clear: you do not solve an inflationary crisis by throwing money at that problem, you could worsen the issue which you're seeking to address.

'The Chancellor will keep all of these issues under close review - I can assure you he most certainly does - and we will bring forward a programme of measures at such time that they'll make the right difference in a targeted way which does not make the very problem worse that we all need to solve.'

Pictured: The Bank of England's projection for GDP, unemployment and inflation  © Provided by Daily Mail Pictured: The Bank of England's projection for GDP, unemployment and inflation 

Mr Sunak added: 'Of course, the Government appreciates that global forces are making life difficult for families at the moment and that is why we have brought forward, as we have heard, £22 billion of support this year to help those in work and the most vulnerable in our society, and we stand ready to do more as the situation evolves.

'But that support is part of a broader plan that will grow our economy, encourage investment and create more skilled, more high-wage jobs. That is the priority of this Government.'

Conservative former minister John Penrose said 'combined tax and benefits withdrawal rates' would be a 'better way' of putting money in many lower-paid families' pockets.

The MP for Weston-super-Mare said: 'With energy and food prices continuing to spiral, will the Treasury team accept that we will soon have to go even further?

'Will they agree with me that compared to increasing benefits, further cuts in these combined tax and benefits withdrawal rates would be a better way of putting money in many lower-paid families' pockets and that, in future, the combined rates paid by less well-off families should never be higher than the top rates paid by the rich?'

Treasury minister Lucy Frazer replied: 'He makes a really valuable point and he will know that the Government have made progress in this area.

'The old system applied an effective tax rate of over 90% to lower earners in some cases. As a result of the changes that we have recently made, for example, an adult working 35 hours at the national living wage with two children over five will benefit from an additional £1,610 a year.'

Conservative former minister Sir Edward Leigh called on the Chancellor to 'reduce the overall tax burden on working families'.

He said: 'The fact remains that Conservative governments that increase taxation during recession, like the first George Bush or John Major, go down to defeat.

'More importantly, millions of families are now desperately worried about how they're going to pay their bill(s), so what I'd like the Chancellor now to do is to say his absolute priority coming up to the Budget is to reduce the overall tax burden on working families.'

Mr Sunak replied: 'I can give him that assurance, that is our priority.

'We started last autumn by cutting the tax rate for those on the lowest incomes and Universal Credit, we carried that on in the spring statement by delivering a tax cut for those on low and middle incomes by raising the primary threshold, and our priority is to keep cutting taxes for those in work, including by cutting income taxes as soon as the public finances allow.'

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