As the cost of living rises to record levels, there is increasing pressure on the chancellor to provide more assistance to households.
Rishi Sunak announced in February a PS9bn package, which included a PS150 discount on council tax and a PS200 energy bill loan in the fall.
However, inflation continues to rise and people are being hard hit.
A single solution will not solve all problems faced by households.
What options are Rishi Sunak able to take to lessen the pain? What are the costs, both politically and financially?
Opposition parties have been drumming for a windfall tax to be imposed on oil and gas companies for several months now. It appears that their persistence might pay off.
One-off levys on profits of firms – which have risen as the economy recovers from the pandemic — are proposed to be imposed and used to help the most vulnerable.
Labour claims the move could generate billions of dollars that could be used to provide targeted assistance for the most severely affected and for more universal payments for everyone.
Ministers were resistant to the policy and insist that an announcement is not imminent.
Boris Johnson and Mr Sunak have both hinted at the possibility of introducing the tax but they said “nothing is off-the table”.
The chancellor even stated that he would levy the tax if oil companies don’t invest enough in UK projects.
Some Conservative backbenchers are also supporting the measure. However, some ministers may be upset if they have to do a screeching U-turn and support it after selling the antiwindfall tax line at No 10.
Opposition parties also propose a reduction in VAT on energy bills.
Labour claimed that removing the 5% annual charge would return around PS90 to people’s pockets, at a cost to the Treasury of PS2.5bn.
The prime minister rejected the idea of the party, stating that it was too “blunt” as a tool because it would affect all households, not just the most needy.
Sir Ed Davey, Liberal Democrat leader, wants to do more than just cut energy bills. He proposes to reduce VAT on all products from 20% – 17.5% per year. It would result in savings of up to PS600 for households, he claims.
In the lead up to the referendum, both Mr Johnson and Michael Gove emphasized the possibility of reducing VAT on energy bills.
It could be more popular if the top Brexiteers who now sit at the cabinet table have once promoted the policy.
It could also be expensive. The Treasury received more than PS130bn in VAT last year, 15% of all cash it received. At a time when the chancellor is trying to pay off UK debts, he might not want to reduce this steady income.
It may appear as another u-turn, following the lead from opposition parties. This is not a popular move in a governing party.
The chancellor announced a PS200 discount on energy bills for people to tackle rising costs in autumn ahead of the next price rise.
Sunak stated that the measure would remove the “sting” from the rise and make a significant difference for the vast majority households.
The PS200 loan was criticised as a loan that would be repaid in five-year instalments starting in 2023.
This funding could be converted into a grant and given to households as a gift, rather than being loaned.
This would be a huge hit to the Treasury’s finances.
It is an extension to the government’s idea, and it is likely that constituents will welcome it. Therefore it could be popular with MPs.
According to reports, the chancellor could endorse changes to the discount for warm homes.
In winter, the scheme provides a one-off payment to households that are least financially secure to pay their energy bills.
This year, the figure has already risen by PS10 to PS150. According to Treasury officials, the payment could rise to PS600 per household to offset the rising energy costs.
This would again result in a mixed outcome for Mr Sunak.
People in need of cash will be grateful, especially considering that energy bills are expected to rise again this fall. It would also mean that the government would have to adjust its policy.
However, such a jump in the amount would be costly to the Treasury.
Mr Sunak views himself as a tax-cutting chancellor.
Two years into his tenure, he announced a tax increase to support the NHS as well as social care in the wake of the pandemic.
This policy was in effect since April and sees all employees, employers, and self-employed paying 1.25p more per pound for National Insurance.
The plan is to have NI return to its normal rate next fiscal year. However, the additional 1.25p per pound will be collected as a Health and Social Care Levy.
Opposition parties criticized the introduction of the tax, saying it targeted the wrong people, and let some, such as landlords, go unpunished.
It was supported by the chancellor. In his Spring Statement, however, he stated that the maximum amount of income people can make before they begin paying NI will be increased.
Although it may seem a bit late for Mr Sunak, he might still be willing to scrap the tax.
Both the PM and the chancellor have repeatedly said that the money needed to fund the NHS backlog and improve social services must come from somewhere.
Many Conservatives, including the PM and chancellor, support tax cuts to lower living costs.
These measures are well received by the Tory benches.
Foreign Secretary Liz Truss supported Wednesday’s calls for tax cuts to encourage investment and economic growth.
The chancellor announced in his spring statement a 1p decrease in the income tax rate starting 2024.
Recent reports suggest that he may bring this forward as soon as this fall’s Budget.
Campaigners pointed out that it wouldn’t target people with the lowest incomes.
A 3.1% increase in state pensions and other benefits was implemented in April.
However, inflation has risen to 9% in the month. Economists and charities warn that rising costs are affecting the most vulnerable households.
The Institute for Fiscal Studies (IFS), a leading think tank, has found that inflation in the UK is higher for the 10% who are the least well off. It stands at 10.9%. This compares to a mere 8% for the richest 10% of the population.
According to the IFS, this is because households with the lowest incomes use 11% of their budgets for electricity and gas, while the richest households spend 4%.
Ministers made a decision in September 2021 to temporarily reduce the link between state pension and average earnings. This would have resulted in an 8% increase for April.
They pledged to restore the “triple lock” pension system, which would allow for an increase in benefits equal to September’s inflation rate next April.
This is a growing demand from ministers.
The Treasury however claims that there are technical hurdles to earlier payments.
Other ways have been difficult for the poorest households.
To help people deal with the Covid pandemic’s economic impact, the government implemented a PS20-a week uplift to universal credits in 2020.
It was withdrawn from October 2021, ministers arguing that it was only a temporary measure. This was despite opposition from six Tory pensions and work secretaries.
Many Conservative MPs and the Treasury are eager to reduce the state intervention and high levels of government spending seen during the pandemic.
Jacob Rees Mogg, Brexit Opportunities Minister, has warned that rising prices could be caused by increasing benefits to people to offset rising bills.
Ministers are looking for other ways to cut living costs, but they don’t have to spend taxpayer’s money.
They include fewer MOT tests, and a relaxation of the rules regarding nursery staffing in order to reduce childcare costs. Boris Johnson is believed to have suggested lowering the legal limits for adult supervision of children in England.
For children aged 2 years or less, at present there should be at least one staff member for every 3 children. One adult must be present for every four children if the child is over-two years old.
Labour claims the idea would reduce quality but not affect availability.
The Liberal Democrats accuse the prime minister of trying to “cut corners, endanger our children”
Grant Shapps, Transport Secretary, is reported to have suggested that MOT test certificates should be renewed less frequently than they are now.
However, the AA warns that such a move could increase drivers’ costs by increasing their repair bills and reducing road safety.
According to reports, ministers are divided over a proposal that would lower import tariffs for certain foods the UK doesn’t produce such as oranges and rice.
According to the Financial Times, Boris Johnson supported the idea. However, Anne-Marie Trevelyan, international trade secretary, claimed it would decrease the UK’s leverage during trade negotiations while having a minimal impact on household bills.
The government announced in February that people living in the council tax bands A and D, which covers about 80% of households would receive a PS150 rebate on their annual Council Tax bill starting April.
Local authorities in England, Wales, and Scotland are processing the payments. There have been concerns over how fast they are being paid.
To reduce motoring costs, the chancellor reduced fuel duty on petrol & diesel by 5p per Liter in March.
Motoring organizations have complained however that not all the fuel retailer’s cut has been passed onto consumers.
