Rishi Sunak is expected to cut fuel duty in his mini-Budget tomorrow after official figures showed borrowing is running nearly £26billion lower than forecast this year.
The expectation is building that the Chancellor may listen to Tory MPs’ demands for a cut of up to 5p in an effort responds to pump price explosions.
However, the government has insisted there will be no rethink on the £12billion national insurance hike – although there is speculation thresholds might be raised to ease the impact.
The Chancellor also warned that “global shocks” would make it’more crucial than ever to adopt a responsible approach towards the public finances.
Although borrowing for the current year is lower than expected, it was much higher in February because the economy suffered from a slowdown even before the Ukraine conflict.
And payments on the UK’s debt mountain were a record £8.2billion last month, up 52.7 per cent on a year earlier due to being linked to inflation.
Sunak said that the ongoing uncertainty created by global shocks makes it even more critical to adopt a responsible view of public finances.
Even though borrowing is down in comparison to estimates for the year, it was substantially higher than in February due to the slowdown in the economy even prior the Ukraine war.
“With interest rates and inflation on the rise it is crucial to ensure that debt does not spiral out of control and continue to burden future generations.
“Look at our track record. We have supported people. Our fiscal rules have allowed us to help households and invest in the long-term economy.
Government borrowing stood at £13.1 billion in February, down by £2.4 billion from the same month a year earlier, according to official figures.
The Office for National Statistics (ONS) said that despite the fall, this was the second highest February borrowing since monthly records began in 1993 and was still £12.8billion more than in February 2020, before the pandemic struck.
In the financial year so far, borrowing reached £138.4billion, which was less than half of the £290.9billion borrowed in the same period last year.
It was also well below the £164.3billion the Office for Budget Responsibility watchdog had pencilled in at the last Budget in the Autumn.
However, interest payments on the Government’s debt soared to a record £8.2billion last month, up 52.7 per cent on a year earlier, due to soaring levels of the RPI measure of inflation used on Government debt payments.
Sunak may be looking at increasing the rate workers pay the levy to reduce the financial burden for the lowest paid.
While the threshold for paying income tax has increased rapidly in recent years to £12,500, the starting level for national insurance has lagged behind.
Most workers currently start paying NI when their income hits £9,568.
Sunak is under pressure to reduce the tax increase of 1.25 percent. It has now been renamed the “health and social service levy”.
It has been described by experts as the worst-timed tax hike in historical history. Experts warn that this will drive up inflation and hurt family incomes at the most inappropriate time.
However, Sunak insists that tax raids will be conducted to help fund post-pandemic action in the NHS.
Sir Iain Duncan Smith was a Tory former leader who urged the Chancellor for a postponement of the tax increase. He added, however that an increase in thresholds may help to reduce the damage.
Sir Iain stated that while tweaking the thresholds may be helpful, the truth is the Chancellor should drop this tax.
We should strive for growth otherwise we’ll end up experiencing stagflation. We are instead putting another burden on businesses and families.
Torsten Bell, the chief executive officer of Resolution Foundation thought-tank said that yesterday’s ‘good news’ on the public finances meant that the Chancellor was able to take action.
Bell said that raising the NI thresholds would help those on low incomes most’.
Sunak stated to BBC Radio 4’s Today program that Mr Sunak should focus on increasing pensions and benefits in order to assist those who have the least income to manage the largest squeeze on family finances for many years.
Bell said that Mr Bell should prioritize raising the thresholds of NI if he had more money.
Sunak will also be finalizing plans for a temporary reduction in fuel duty, to counter record high petrol and diesel prices in the midst of the Ukraine crisis.
Bell claimed that the fuel duty reduction, which is estimated at 5p per litre was an essential part of this package.
No.10 stressed, however that the cost increases would not be fully offset by the Chancellor.
Official spokesman for Prime Minister said that the government cannot handle all challenges on a global level.
British Chancellor of Exchequer Rishi Sunak addresses the Conservative Party Spring Conference, Blackpool. Sunak is believed to be contemplating a rise in the rates at which workers pay National Insurance