FILE PHOTO: British Chancellor of the Exchequer Rishi Sunak speaks at a statement on the economic update session, at the House of Commons in London, Britain March 23, 2022. UK Parliament/Jessica Taylor/Handout via REUTERS
March 28, 2022
LONDON (Reuters) -British finance minister Rishi Sunak on Monday defended the tax cuts he announced last week, after they were widely criticised for not helping the poorest households through the most severe hit to living standards since at least the 1950s.
With the Russia-Ukraine conflict pushing up already high energy prices and putting British inflation on course to reach almost 9%, Sunak told lawmakers that his overall policy plan, including measures taken last year to help people on welfare benefits, were “highly progressive”.
He also said borrowing more, on top of his huge spending to shield the British economy from the COVID-19 pandemic, would risk fuelling the inflation hit felt most by the lowest earners.
“I am comfortable that the choices I have made are the right ones for the country,” he said.
Sunak rejected suggestions he should have targeted his latest tax cuts only at people on welfare.
He said he would wait to see whether further support for households facing surging energy costs would be needed in October, when power bills are due for a twice-yearly reset.
In February, he announced a 9-billion-pound ($11.8 billion)package to spread some of the electricity and gas price pain.
“Let’s wait until we get there and then decide on the most appropriate course of action,” Sunak said.
A recent fall in prices in energy markets would mean a lessening of the projected hit to household incomes this year if those lower prices continued in the coming months, he said.
Underscoring his limits for easing the cost-of-living crisis, Sunak said the headroom built into his tax and spending plans could easily be undone by weaker-than-expected growth or higher interest rates.
“If you took the Bank of England’s economic outlook as opposed to the OBR’s (Office for Budget Responsibility), an equally credible institution, that would wipe out over half of it,” Sunak told lawmakers.
A 1% increase in BoE interest rates or a 1% change in the tax-to-gross domestic product ratio would eliminate the headroom entirely, Sunak said.
In a half-yearly budget update last week, he announced an immediate fuel duty cut and a softening of April’s increase in social security contributions, as well as an income tax cut for 2024.
But his plans were widely criticised for not doing enough to help households on the lowest incomes.
($1 = 0.7639 pounds)
(Reporting by William Schomberg and Andy Bruce; Editing by Alex Richardson)