Chancellor of the Exchequer Rishi Sunak asked Britain’s independent budget office to produce new forecasts for March 23. He is likely to deliver his mid-year Spring Statement update on that day. The UK is struggling with numerous financial problems. As it says in the Independence, what could the Chancellor do to fight against the cost-of-living crisis?
High energy bills
As it says in the Independence, energy bills will rise sharply in the spring. There will be a planned price-cap change, potentially increasing prices by as much as 50 per cent. This is what economists say. As the NewScientist, says, what can the UK government do to help cut fuel bills? The UK government is talking to the energy industry to reduce a massive rise in energy bills. This rise in energy bills is going to hit consumers in April.
Value-added tax (VAT) on energy
According to Sky News, there are proposals about removing VAT on energy bills for a year. However, even cutting VAT won’t satisfy consumers, says Adam Scorer. The tax only makes a small proportion of the overall bill. The scorer is the chief executive of the campaign group National Energy Action. Most recent data from Ofgem shows that VAT is around 5% of a typical dual fuel bill.
As the Independence states, a study suggests that cutting VAT on energy bills has a degree of support. However, it is unlikely to be enough to prevent the shock for consumers. A typical household will only save around £90 if they don’t pay a VAT charge on their energy bill.
Green levies on household bills
According to the I News, a group of Tory MPs have called for reducing energy costs for the consumer. They want the Treasury to pay the environmental levy placed on electricity bills. The Conservative Environment Network (CEN) has argued that the Treasury should temporarily fund them from the Exchequer. CEN also says that the Treasury should devise policies to support the environmental energy projects in the long term. CEN has 116 Tory MPs among its members.
Meanwhile, as the Independence says, slashing green levies on household bills would leave the Treasury having to find £5bn from general taxation. The analysis found that this is “equivalent to around 1p on the basic rate of income tax”, the study found. Green levies pay for the costs of tackling climate change.
According to Liverpool Echo, several significant financial changes will come into force in 2022. These changes will affect millions of people and will cause the cost-of-living crisis. The state pension, hourly wage and council tax will all change before the new tax year in April. However, as inflation levels go up, the cost of living will increase more than other things. As Sarah Coles says, “2022 is a year of change, but not in a good way”. Sarah Coles is a senior personal finance analyst at Hargreaves Lansdown.
Relatively low wage increases
Low wage increases is another major cause of the cost-of-living crisis. The Low Pay Commission’s recommendations on the National Living Wage and National Minimum Wage rates are available on GOV.UK. The offers will apply from April 1 2022. The Government has accepted these recommendations in full. The National Living Wage rate will be £9.50 from April 2022. The current rate (April 2021 to March 2022) is £8.91. This shows an increase of 6.6%. According to Sky News, inflation is currently at a ten-year high and is expected to rise to 6% by the spring, the highest level since the 1990s.
Running out of time
The Government has to find a quick solution for the cost-of-living crisis ahead of critical deadlines. One deadline is March’s spring statement from the Chancellor. According to GOV.UK, the Chancellor has commissioned the Office for Budget Responsibility (OBR) to produce an economic and fiscal forecast. As it says in OBR, the Chancellor has announced that the spring 2022 forecast will be on March 23. That day we will release the latest outlook for the economy and public finances. As Independence says, the Government is running out of time to find solutions to high energy prices. The Government has to find answers before March 23.
No easy options for the Chancellor
The Chancellor does not have easy options for tackling the cost-of-living crisis. According to the KPMG, the Government’s normal tax policy cycle has been upset in recent years. We have had a Budget in the spring in both 2020 and 2021. However, it is unclear currently whether we will see a return to the Government’s preferred approach. The Government’s preferred method is to present one annual Budget in the autumn this year. Suppose the Chancellor confirms a Spring Statement for March. In that case, significant tax or spending announcements are more likely to be held back until a budget later in the year.
As we stated above, according to the Independence, energy bills will rise sharply in the spring. There will be a planned price-cap change, potentially increasing prices by as much as 50 per cent. Therefore, as economists at the Tony Blair Institute warned, spending or borrowing money is “inevitable” for the Treasury. Spending or borrowing money is necessary for easing a “living standards shock” for Britain’s poorest this April. The Chancellor has to find ways to tackle the crisis affecting the lives of millions of people.