Rishi Sunak has ruled out slashing VAT on household energy bills in Wednesday’s Budget, in a blow to millions of families struggling with a cost of living squeeze.
Treasury has been resisting the pressure on the Chancellor to reduce its levy. Sources claimed that he believed that the move would subsidise the wealther households, while doing too little for those who are the most vulnerable.
The current VAT rate of 5 per cent on fuel bills sets households back by around £60 a year, and scrapping it would cost the Treasury around £1.6billion.
Labour’s Shadow Chancellor Rachel Reeves called on ministers to deliver on a promise they made during the 2016 Brexit referendum campaign, when Boris Johnson and Michael Gove pledged to scrap VAT on energy bills if the UK left the European Union.
They wrote jointly in an article at the time that: “When we vote Leave, we will have the ability to repeal this unfair and harmful tax. It’s not right that Brussels’ unelected bureaucrats impose taxes on the poorest of British politicians.
Miss Reeves stated in an interview with Mail that “they said it in referendum campaign so why hasn’t they done it?” What more evidence are you looking for to cut domestic VAT energy bills? It is the perfect time to do so, since they are so high. The best thing about cutting VAT is that it can be done instantly and automatically on your bills. People don’t need to apply, there is no bureaucracy and everyone is affected by rising gas electric bills.
However, Mr Sunak did promise that the UK’s minimum wage will increase from £8.91 to £9.50 an hour next year – an inflation-busting rise of 59p which is expected to deliver an annual salary boost of an extra £1,000 to millions of full-time workers.
A total of 5.6 million staff, including teachers and members the Armed Forces, will see an increase in their salaries starting April after a one-year salary freeze. At the same time, the minimum wage will rise by 59p to £9.50, boosting the incomes of two million of the lowest paid.
But the move has sparked a backlash from campaigners demanding to know where the money would come from, with the country facing an estimated £400billion bill for the Covid crisis and the Treasury having already made spending pledges worth billions.
It comes as Mr Sunak has been forced to ditch a 2.84p budget hike in fuel duty because of record petrol prices, with the average forecourt price per litre hitting a record 142.94p on Sunday.
The hated levy was due to go up from 57.95p per litre to 60.79p, potentially costing drivers £66 extra a year per car. MPs claim that they have been assured by Treasury that the planned 4.9 per cent increase for 2022 will not be implemented.
It is:
- Mr Sunak ruled out slashing VAT on household energy bills – but was urged to think again to ease the pressure on struggling households;
- As the average pump price soared to an all-time high, petrol companies were accused of ripping motorists with the extension of the fuel duty freeze.
- Despite billions of pounds of new spending, ministers failed to set a goal for clearing the huge NHS backlog.
- Critics accused the Chancellor, by delaying plans for overhauling business rates, of driving a “nail in their coffin” on high streets.
- The Commons Speaker berated Mr Sunak for giving a lot of details in preparation for tomorrow’s Budget.
- Rachel Reeves from Labour warned voters that they would face record taxes and not receive better services.
- Experts warned that pay hikes could be ‘blunted by rising inflation, rising oil bills, and the cost of living crisis.
Rishi Sunak has ruled against slashing VAT household energy bills in Wednesday’s budget, in a blow for millions of families already struggling to cope with a high cost of living
Research agency Cornwall Insight has predicted suppliers could push the energy price cap to about £1,660 in summer. The forecast is approximately 30% higher than the record £1,277 price cap set for winter 2021-22, which commenced at the start of October. It was £1,138 before that
Although the Chancellor has been under immense pressure to reduce the levy, Treasury sources stated that he believed the move would subsist well-off households while not doing too much for the poorest (stock photo).
Cash terms, the pay in the public sector has increased more steadily than that in the private sector. Private sector pay has seen significant drops during the pandemic or the Credit Crunch. This chart is not comparable due to the different types of jobs in each industry.
This NIESR chart shows the percentage growth in wages over time. Private sector workers were harder hit by the pandemic. Many will have gone without a raise last ye, but wage growth has begun to recover this year as the economy bounces.
Business leaders warned that the minimum wage increase could cause financial difficulties for struggling businesses and raise inflationary concerns.
Combining the unfreezing of public sector pay with an increase in the minimum wage would give a salary boost to nearly five million workers. However, higher wages mean higher costs for employers. This could lead to price increases and further inflation.
Critics warn that it would be unfair to ask the private sector for funding to pay for a salary increase in the public sector, given the ‘unfair’ nature of the situation.The pandemic caused extreme economic pain.
Miss Reeves accused ministers for wasting billions upon billions of public money in the past two-years. She highlighted examples including £438million paid to consultants working on test and trace at rates of up to £6,600 a day.
She stated that the Government is now asking ordinary workers and businesses to pay more national insuring. “But they’ve been wasting taxpayers money and not showing the respect that I believe it deserves.”
“It is a lack understanding about how families and pensioners are dealing with rising costs right now. Ministers may not be able to fully grasp the difficult decisions that families are facing and the businesses that are making them.
Miss Reeves shared the story of her 67-year old mother, who was having difficulty seeing a GP face-to-face. She stated that people are being taxed more now than ever since the Second World War Two.
“Do people feel they are getting better service than at any time since the Second World War?” Talking to my family and constituents, I can tell that this is not the way people feel.
‘I spoke with my mum over the weekend about how long it takes for her to see a GP in person or get routine tests. It’s the same story for many people. You wait in line for hours to speak to someone on the phone, and then you’re waiting for appointments for a few weeks.
“Or you can look at the schools in my area and see what’s happening to class sizes. So people are being asked to pay more than they’ve ever been asked to pay before and yet public services – despite I think how hard a lot of people that work in the public sector – are getting worse.’
According to Treasury sources Sunak believes that a reduction to VAT on household energy bills is not possible because it would be ‘poorly targeted and lead to subsidizing thousands of well-off families and not providing enough support to those who need it most’.
Household bills have increased since the energy price cap was lifted this month and lower tariffs were withdrawn. Families on a standard tariff with typical energy usage have seen their bill rise by £139 to £1,277 a year.
Yesterday, the Commons Speaker criticized Mr Sunak for giving so much information about the Budget in the days leading up to its publication. Sir Lindsay Hoyle claimed that past chancellors would have resigned because they ‘ride roughshod’ over parliament’s expectation of being informed first.
Although the economic statement will not be delivered until tomorrow, 16 measures have already been disclosed by the Treasury. Yesterday Mr Sunak’s department briefed that there would be almost £6billion for the NHS.
Sir Lindsay stated that he had repeatedly stressed, including last Thursday, that ministers must first make important announcements to the chamber. Despite these clear statements, it’s evident the Treasury briefed journalists about the contents of the forthcoming budget over weekend.
Monday’s Official Spokesman for the Prime Minister hinted at Mr Sunak cutting fuel duty. “We acknowledge that rising fuel costs pose a challenge for the British people.”
According to the RAC, retailers have seen their profit margins increase by 4p per liter from 5.5p in April 2013 to 8.59p in April 2014. They claimed that smaller, independent retailers were trying to rebuild profits following the sharp fall in sales caused by the UK lockdown.
According to the AA, record pump prices are telling drivers that it’s time for them to switch to electric, regardless of whether they’re oil producers, market speculators or Treasury taxes.
Political pressure has been immense on the Chancellor to not raise fuel duty. Numerous Tory MPs from the Northern Research Group wrote to him, saying that North residents rely on cars to get to work, take their children to school, as well as to provide food for their families.
“Any rise in fuel duties puts a bar in the way people access well-paying jobs, and take care of their families. Cars for our constituents don’t come as a luxury, but they are a necessity.
The new national minimum wage of £9.50 will be rolled out from April 1 and will apply to all workers aged 23 and over.
The minimum wage for younger workers will also increase, with people aged 21 to 22 seeing their pay go from £8.36 to £9.18. Pay for apprentices will increase from £4.30 to £4.81.
Mr Sunak stated that ‘This Government is on the side for working people. This wage boost ensures that we are making work pay and keeps our sights on achieving our target of ending low pay by end of this Parliament.
The Government has established a minimum wage target of two-thirds the average earnings by 2024.
The Chancellor stated that furlough was over and that it was time to return to “a more normal way of doing business”.
Sajid Javid hailed Rishi Sunak’s £6billion funding boost for the NHS as he insisted the cash is ‘new money’
Labour called the increase underwhelming’ and stated that’much’ will be’swallowed away’ by Government tax hikes.
Bridget Phillipson, shadow chief secretary to the Treasury, said: ‘This underwhelming offer works out at £1,000 a year less than Labour’s existing plans for a minimum wage of at least £10 per hour for people working full-time.
“Much of it” will be swallowed by the Government’s tax increases, universal credit cuts, and failure to control energy bills. It’s clear that Labour has the only party committed to improving the prospects of workers.
The increase puts the minimum wage on course to hit £10 an hour before the 2024 general election. Boris Johnson’s claims to shift the UK towards a high-wage and high-skilled economy would be strengthened if the minimum wage was raised and public sector wages were unfrozen.
Based on the advice provided to the Government by the Low Pay Commission, the minimum wages are set.
The Treasury stated that it had accepted all recommendations of the Low Pay Commission this fiscal year.
While employees are likely to welcome the increase in minimum wage, there are concerns from the Treasury about the impact it will have upon businesses.
Employers will pay more for higher wages, which could cause them to raise their prices.
Any increase in prices will likely increase the chances of Bank of England raising rates.
It was made amid backlash over claims that Sunak would use Budget to unfreeze pay in the public sector.
John O’Connell, chief executive of the TaxPayers’ Alliance campaign group, said it would be ‘unfair’ to ask the private sector to pay for a public sector pay rise after the damage done by the pandemic.
He stated that the public sector’s pay creeping up would be a problem for the rest of the country, while millions in the private sector are experiencing extraordinary economic pain.
“Many were affected by the pandemic and their lives, businesses, and livelihoods were destroyed. It’s unfair that these same people should have to pay for public sector jobs that are protected.
“The government should help all taxpayers by reducing the 70-year high tax burden.”
Julian Jessop was an economist fellow at the Institute of Economic Affairs think-tank.The public sector pay freeze seems to have been successful in reducing average weekly earnings. Private sector earnings now match those in public.
“It is becoming increasingly difficult to justify keeping the freeze, when wages and prices are rising rapidly in the rest of our economy. The government must pay the current rate, just like any other employer.
“Despite this, workers in government are still paid more than those in private sector after taking into account all factors, including pensions.
“What’s more is that the economic effects of the pandemic have been felt by the private sector workers in terms of job loss and pay cuts.
“This suggests that public sector salaries should still be increased slowly than private sector wages, even after the freeze has ended.”
During an interview on BBC’s Andrew Marr Show, Mr Sunak hinted at changes in the pay front.
Asked if public sector pay will increase, he replied: ‘That will be one of the things that we talk about next week in the spending review.
“Obviously, over the past year we made a decision to have more targeted approach to public sectors pay since there were large increases in the previous year and the private sector saw pay decreases last fiscal year. People were also on furlough.
“We thought it was reasonable and fair. We’ll now have to establish a new pay policy, and that will be the topic of next week’s spending review.
Rising inflation is putting pressure on the Government, who must act on wages.
According to figures released by the Office for National Statistics, the Consumer Prices Index was at 3.1% in September according to statistics.
This figure is well above the Bank of England target of 2 percent.
In September, the Bank warned that inflation could rise to over 4% before falling back as the economy recovers from the pandemic.
The Government announced last November at the 2020 Spending Review that it was ‘pausing’ public sector pay until 2021/22, but an exemption was made for NHS staff.
The Coalition Government frozen public sector pay for two years beginning in 2011/12.
The average increase in public sector salaries from 2013/14 through 2017/18 was 1%.
This policy was lifted in 2017, and parts of the public sector saw increases above 2 percent from 2018/19 to 2020/21.
In April 2020 average weekly earnings in the public sector were £647 compared to £567 in the private sector, according to research published by the House of Commons Library.
April 2020 earnings for public sector workers were 2.4% more than in the previous year. However, the private sector saw a 0.6% drop in pay.
The coronavirus pandemic caused the fall in the private industry. This saw industries such as hospitality being locked down.