Pressure is ramping up on the Chancellor of the Exchequer to make some major interventions to help families struggling with the surging cost of living.
While the spring statement is not meant to be the same as the official budget, which is in the autumn, during the pandemic, Rishi Sunak used the opportunity to introduce new spending pledges and extend existing support measures, meaning the main focus this week is likely to be on what measures can make some difference to what newspapers are calling the "cost of living crisis”.
And although it might undermine the Chancellor’s plans to hold back giveaways until right before a general election, economists suggest he will have plenty of fiscal firepower to alleviate the impact of inflation for households.
Pressure on Sunak is coming from his colleagues and the likes of Money Saving Expert Martin Lewis warning that the hike in energy prices will be “catastrophic” and that inflation is causing “absolute panic” for families around the UK who are having to make choices of “prioritising feeding my children over feeding myself”, while motor groups are calling for cuts to fuel duty and greater regulation of the petrol stations market, and think-tanks are cautioning about potential pitfalls in choosing the wrong policy options.
Chancellor Sunak will have £23bn of headroom in his budget to allow him to provide help for families, according to forecasts by Capital Economics, £6bn higher than the Office for Budget Responsibility previously estimated.
The OBR said the government would borrow £183bn in 2021-22 but the government is now on course to borrow only about £160bn, thanks to much stronger tax receipts than expected.
This headroom should allow many potential measures to ease the rising cost of living, with various proposals having been leaked to the media, including raising the National Insurance threshold, giving some help to the lowest income earners.
It has been confirmed that eligibility criteria for the Warm Home Discount scheme will be expanded to allow more people to apply, while measures to improve energy efficiency and encourage reducing energy consumption having also been reported, killing some low-carbon birds with the same stone.
As well as a potential moving of NI threshold and a cut in the petrol pump duty, other mooted tax measures include a cut to the 5% domestic fuel duty and/or 20% fuel VAT, a windfall tax on oil companies.
An increase to benefit payments would be a better way to reduce the impact of price rises on lower-income families, according to the Resolution Foundation. Uprating benefits to keep pace with inflation over the coming year would be deliver four times more support to the bottom half of the income distribution per pound spent than scrapping the rise in National Insurance contributions, the think tank said.
It has also been suggested that the Chancellor might use the spring statement to set out his intention to reform the corporate taxation system, aiming to boost investment and productivity.
This is likely to be flagged on Wednesday before the full reforms are spelt out in the autumn budget, when the Bank of England has warned that households could face an even greater wave of inflation if energy prices remain elevated.
As well as help for households, Sunak is also being pushed to increase defence spending in the wake of Russia’s invasion of Ukraine.
To help the still-recovering hospitality sector, he is also believed to be mulling an extension to the VAT cut made during the summer of 2020.
But the Chancellor has reportedly told cabinet colleagues of his desire to hold off as many big giveaways as he can until the autumn, apparently because of the volatility of global asset prices.