Rishi Sunak has refused to slash VAT on household energy bills in Wednesday’s Budget, in a blow to millions of families struggling with a cost of living squeeze.
The Chancellor has been under huge pressure to cut the levy, but Treasury sources said he believed the move would subsidise richer households while doing too little for the poorest.
The current VAT rate of 5 per cent on fuel bills sets hard-pressed households back by around £60 a year, but scrapping it would cost the Treasury around £1.6billion.
Labour’s Shadow Chancellor Rachel Reeves has 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 in a joint article at the time: ‘When we Vote Leave, we will be able to scrap this unfair and damaging tax. It isn’t right that unelected bureaucrats in Brussels impose taxes on the poorest and elected British politicians can do nothing.’
In an interview with the Mail, Miss Reeves said: ‘They said it in the referendum campaign so why have they not done it? What more evidence do you need to cut VAT domestic energy bills? This is the time to do it when they are soaring so much. The good thing about cutting VAT is it can be done immediately and automatically on bills. So people don’t have to apply for it, there’s no bureaucracy to go through and everybody is affected by rising gas electricity 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.
Around 5.6million staff – including nurses, teachers and members of the Armed Forces – will have an increase from April when a one-year salary freeze ends. 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. But MPs say they have been assured by the Treasury that the scheduled 4.9 per cent rise for 2022 will not go ahead.
It comes as:
- Mr Sunak ruled out slashing VAT on household energy bills – but was urged to think again to ease the pressure on struggling households;
- With the freeze on fuel duty set to be extended, petrol firms were accused of ripping off motorists as average pump prices hit an all-time high;
- Ministers refused to set a target for when the enormous NHS backlog would be cleared despite billions of pounds of fresh spending;
- Critics accused the Chancellor of driving a ‘nail in the coffin’ of high streets by delaying plans to overhaul business rates;
- Mr Sunak was berated by the Commons Speaker for briefing a slew of details in the run-up to tomorrow’s Budget;
- Labour’s Rachel Reeves warned voters were facing record tax bills without receiving better public services;
- Experts warned that the pay hikes could be ‘blunted’ by the threat of rising inflation, rising energy bills, petrol costs and the cost of living crisis.
Rishi Sunak, left, has been under huge pressure to cut the levy, but Treasury sources said he believed the move would subsidise richer households while doing too little for the poorest. Labour’s Shadow Chancellor Rachel Reeves, right, called on ministers to deliver on a promise they made during the 2016 Brexit referendum campaign
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
The Chancellor has been under huge pressure to cut the levy, but Treasury sources said he believed the move would subsidise well-off households while not doing too little for the poorest (stock image)
In cash terms, public sector pay has risen more steadily than private sector pay, which has seen significant dips during the pandemic and the Credit Crunch. The different types of jobs in each sector means that the overall pay level is not directly comparable in this chart
This NIESR chart shows percentage growth in wages in each sector over time. Private sector workers were hit harder by the pandemic and many will have gone without a pay rise last year, but wage growth is recovering this year as the economy bounces back
The Government’s pre-Budget spending spree
The Government has already announced spending worth more than £30billion which Rishi Sunak will confirm at the Budget on Wednesday.
Below is a breakdown of some of the most notable funding pledges:
– The national minimum wage will increase from £8.91 to £9.50 from April next year.
– An extra £6billion will be given to the NHS to pay for new equipment and new facilities to clear the Covid backlog.
– Brownfield sites covering the equivalent of 2,000 football pitches could be turned into plots for housing as part of a £1.8billion injection.
– A £2.6billion pot of funding will be set up to help children with special educational needs and disabilities.
– Levelling up transport outside of London will benefit to the tune of nearly £7billion, paying for a range of projects, including tram improvements.
– The Department of Health and Social Care will receive £5billion over the next three years to fund research and development in areas such as genome sequencing and tackling health inequalities.
– A cash injection of £3billion will be given to both post-16 education but also to adults later in life.
– £850million will be spent over three years to ‘breathe life’ back into cultural hotspots like London’s V&A museum, Tate Liverpool and the Imperial War Museum in Duxford.
– Ageing Border Force vessels will be replaced by new cutters as part of a £700million investment to improve the safety of Britain’s borders.
Business chiefs warned the increase in the minimum wage could hit struggling firms and fuel concerns over inflation.
The combination of unfreezing public sector pay and increasing the minimum wage would provide a salary boost to almost five million workers. But higher wages will mean higher costs for employers which could then be reflected in price increases, fuelling a further surge in inflation.
Critics have warned it would be ‘unfair’ to ask the private sector to fund a salary hike for the public sector given the ‘extraordinary economic pain’ caused by the pandemic.
Miss Reeves accused ministers of wasting billions of pounds of public money over 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.
‘The reason why it matters is because the Government are now coming to ordinary working people and businesses and asking them to pay more national insurance,’ she said. ‘And yet they’ve been wasting taxpayers’ money and not showing the respect for taxpayers’ money that I think it deserves.
‘It is a lack of understanding about how families, pensioners and businesses are struggling right now with rising costs. I’m not sure if ministers fully comprehend the difficult decisions that families and businesses are having to make at the moment.’
Miss Reeves told how people including her 67-year-old mother were struggling to see GPs face to face. ‘We are in a situation now where people being taxed more than at any point since the Second World War Two,’ she said.
‘Do people think they are getting better services than at any point since the Second World War? I can tell you from talking to my constituents and my family that is not how people are feeling.
‘I spoke to my mum at the weekend about how long she’s waiting to see a GP face to face or to get routine tests. It’s the same for so many people, you wait ages in a in a queue to speak on the phone to someone, and then there’s no appointments available for a couple of weeks.
‘Or look at schools in my constituency and what’s happening with 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.’
The Treasury sources said Mr Sunak has ruled out a cut to VAT on household energy bills as he believes it would be ‘poorly targeted’ and lead to ‘subsidising thousands of well-off households and not providing enough help to those who most need it’.
Household bills have risen as the energy price cap was raised this month and cheaper tariffs have been withdrawn. Families on a standard tariff with typical energy usage have seen their bill rise by £139 to £1,277 a year.
Labour says it would cut VAT on energy bills to ZERO for six months
Shadow chancellor Rachel Reeves said Labour would cut the rate of VAT on gas and electricity bills from 5 per cent to 0 for six months.
She told Times Radio: ‘There’s a real opportunity now for the Prime Minister and the Chancellor to put their money where their mouth is and at the moment when people are facing an incredibly tough winter with many families and pensioners feeling the squeeze with the prices, particularly of essentials – food and gas and electricity increasing – that the Government could do something immediate and that would automatically reduce bills from next month and that is cutting VAT from 5 per cent to 0 per cent.
‘And we would pay for this, and I’ve been looking at VAT receipts over the last few months.
‘VAT receipts have come in £2.2 billion more than what was anticipated and forecast at the last Budget, in a large part because prices have gone up by so much more than anticipated, that money could be used to immediately and automatically reduce the gas and electricity bills of every family, pensioner and individual in this country who is worried about rising gas and electricity prices right now, it’s a practical thing that Government could do.’
Mr Sunak was berated by the Commons Speaker yesterday for briefing so much about the Budget in the days before it is published. Sir Lindsay Hoyle said past chancellors would have resigned for ‘riding roughshod’ over parliament’s expectation to be informed of policies first.
The Treasury has already revealed 16 measures even though the economic statement is not delivered until tomorrow. Yesterday Mr Sunak’s department briefed that there would be almost £6billion for the NHS.
Sir Lindsay said: ‘I have made clear repeatedly, and as recently as last Thursday, that ministers must make important announcements first to this chamber. Despite those very clear comments, it’s evident that the Treasury briefed journalists on the content of the forthcoming budget over the weekend.’
On Monday, the Prime Minister’s Official Spokesman also hinted that Mr Sunak would cut fuel duty, saying: ‘We recognise rising fuel costs are a challenge for the British public.’
The RAC said retailers have increased their profit margins by 4p a litre, from around 5.5p in April last year to 8.59p. They claimed smaller, independent ones were trying to rebuild profits after the steep fall in sales prompted by the first UK lockdown last year.
The AA said: ‘Whether it’s down to oil producers, market speculators, Treasury taxes or struggling retailers trying to balance their margins, record pump prices must be saying to drivers with the means it’s time to make the switch to electric.’
The Chancellor has been under huge political pressure not to raise fuel duty. Dozens of MPs from Tory pressure group the Northern Research Group wrote to him saying: ‘Those in the North rely on cars to go to work, to take their children to school, and to put food on the table.
‘Any rise in fuel duty puts a barrier in the way of people accessing well-paying jobs and taking care of their families. Cars for our constituents aren’t a luxury Chancellor, 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 said: ‘This is a Government that is on the side of working people. This wage boost ensures we’re making work pay and keeps us on track to meet our target to end low pay by the end of this Parliament.’
The Government has set a target of the minimum wage being two-thirds of average earnings by 2024.
The Chancellor said that as furlough had ended a return to ‘a more normal way of doing things’ was needed.
Sajid Javid hailed Rishi Sunak’s £6billion funding boost for the NHS as he insisted the cash is ‘new money’
Sajid Javid hails £6billion funding boost for the NHS to clear Covid backlog as a ‘huge amount’ of cash as he insists Rishi Sunak’s Budget spending spree for the health service is ‘new money’
Sajid Javid today hailed Rishi Sunak’s £6billion funding boost for the NHS as he insisted the cash is ‘new money’.
The Health Secretary said the ‘huge amount’ of money being brought forward by the Chancellor at the Budget on Wednesday is what the health service has ‘asked for’.
He insisted it will be enough to clear the coronavirus treatment backlog, with funding due to be spent on providing millions more checks, scans and procedures for non-emergency patients.
The £6billion package is for capital spending and is separate to the £12billion funding injection being provided through the Government’s new health and social care levy which will pay for day-to-day services.
The capital funding will aim to deliver approximately 30 per cent more elective activity by 2024-25 compared to pre-pandemic levels.
In an effort to address the Covid backlog of people waiting for checks, tests and scans, and help get waiting lists down, £2.3billion of the funding package will be used to transform diagnostic services.
The Treasury said there will be at least 100 ‘one-stop-shop’ community diagnostic centres across England, including 44 which have already been announced.
These centres are expected to help clear most existing test backlogs caused by the pandemic, including for CT, MRI and ultrasound scans, by the end of the parliament.
The settlement to tackle backlogs also includes £1.5 billion for increased bed capacity, equipment and new surgical hubs to tackle waiting times for elective surgeries.
Each hub will be equipped with four or five surgical theatres designated for critical elective surgeries.
Labour described the increase as ‘underwhelming’ and said ‘much of’ the extra cash will be ‘swallowed up’ by Government tax rises.
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 up by the Government’s tax rises, universal credit cuts and failure to get a grip on energy bills. It’s clear that Labour is the only party serious about improving the prospects of working people.’
The increase puts the minimum wage on course to hit £10 an hour before the 2024 general election. Unfreezing public sector pay and lifting the minimum wage would bolster Boris Johnson’s claims of shifting the UK towards a high wage, high skill economy.
The minimum wage level is set based on advice given to the Government by the independent Low Pay Commission.
The Treasury said it had accepted all the recommendations made by the Low Pay Commission this year.
The minimum wage hike is likely to be welcomed by employees but there are some concerns in the Treasury over the impact it will have on businesses.
Higher wages will mean higher costs for employers which could prompt firms to put up their prices to pay for it.
Any increase in prices would likely increase the chances of the Bank of England putting up interest rates.
It came amid a backlash over claims Mr Sunak will use the Budget to unfreeze public sector pay.
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.
‘Public sector pay creeping up will rankle with the rest of the country when millions in the private sector are facing extraordinary economic pain,’ he said.
‘Many had their lives, jobs and businesses upended by the pandemic, so it’s unfair for those same people to pay out for protected public sector jobs.
‘The Government should instead help every taxpayer by slashing the 70 year high tax burden.’
Julian Jessop, economics fellow at the Institute of Economic Affairs think tank, said: ‘The public sector pay freeze has largely done its job: average weekly earnings in the private sector have now caught up with those in the public sector.
‘It is also increasingly hard to justify keeping the freeze when wages and prices in the rest of the economy are rising rapidly. Like any other employer, the government needs to pay the going rate.
‘Nonetheless, workers in the public sector are still paid more, on average, than those in the private sector, once all factors including pensions are taken into account.
‘What’s more, private sector workers have borne the brunt of the economic impact of the pandemic, both in terms of job losses and pay cuts.
No sugar tax then? Sunak reveals his pre-Budget prep includes a Twix and a Sprite
Rishi Sunak has revealed his ‘pre-game routine’ will be to have a Twix and a can of Sprite before delivering his Budget on Wednesday.
The Chancellor, who has a self-confessed ‘sugar problem’, and has previously said he was a ‘total coke addict’ – before clarifying that he meant the fizzy drink, not the class A drug – was asked on Times Radio whether he had any rituals or superstitions ahead of the event.
And he said: ‘I have a general pre-game routine, pre-match routine, for when I have to do parliamentary things which is, look, I have a sugar problem so I tend to have a Twix and a can of Sprite, even though my favourite thing is Coke but I save that for afterwards.
‘But I have a Twix and a can of Sprite which Lisa who runs my office always make sure is sitting there on my desk in Parliament, so that is my immediate pre-game kind of booster.’
Mr Sunak also said his children ‘have a lot of input generally on the tie selection and I sometimes wear some bracelets that they make’.
He said: ‘So that is the general superstition and tradition, but they are all in Yorkshire for half term so I’m not sure how we’re going to manage all of that, we’ll have to do it on Zoom in the morning probably.’
The Chancellor, who has previously spoken about being a fan of Peloton, a stationary exercise bike with a digital screen, was asked whether he would be able to fit in a 6am ride before the big event.
He said: ‘Probably not. My routine over the last week has slightly had to take a backseat to getting everything ready for Wednesday, sadly.’
‘This suggests that public sector pay should still be increased more slowly than private sector pay, even after the freeze has ended.’
Mr Sunak had hinted at changes on the pay front during an interview on the BBC’s Andrew Marr Show.
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 took a decision to have a more targeted approach to public sector pay given that the year before there were large increases and obviously the private sector was seeing pay decreases last year, and people were on furlough.
‘We thought that was reasonable and fair. Now going forward, we’ll have to set a new pay policy and that will be a topic for next week’s spending review.’
Rising inflation levels are piling the pressure on the Government to act on wages.
Figures published last week by the Office for National Statistics showed the Consumer Prices Index measure of inflation was at 3.1 per cent in September.
That figure is far above the Bank of England’s target of two per cent.
The Bank warned in September that inflation could rise to more than four per cent before falling back as the economy continues to recover from the pandemic.
The Government announced at the 2020 spending review last November that it was ‘pausing’ public sector pay for 2021/22 but there was an exemption for NHS staff.
Public sector pay was frozen by the Coalition Government for two years from 2011/12.
Then from 2013/14 to 2017/18 public sector pay increases were capped at an average of one per cent.
That policy was then lifted in 2017 and from 2018/19 to 2020/21 parts of the public sector received increases above two per cent.
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.
In April 2020 earnings for the public sector were 2.4 per cent higher than the year before. But pay actually fell in the private sector by 0.6 per cent.
The fall in the private sector was blamed on the coronavirus pandemic which saw private sector industries like hospitality hammered by lockdown.
BUDGET: WHAT HAS ALREADY BEEN ANNOUNCED?
Chancellor Rishi Sunak said on Sunday that ‘(over) the last year, I’ve been focused on delivering our plan for jobs, protecting people’s livelihoods, their incomes, their jobs’.
But he said he would now be ‘looking to the future and building a stronger economy for the British people’.
These are the announcements that have already been confirmed:
– ‘Levelling up’ transport
The Treasury said nearly £7billion would be given to areas such as Greater Manchester, the West Midlands and South Yorkshire for projects ranging from tram improvements to introducing London-style improvements in infrastructure, fares and services.
Some £5.7billion will be five-year transport settlements for the regions, while £1.2billion of new funding will go towards transforming bus services to deliver London-style journey times, fares and number of services.
– Digital overhaul for the NHS
A £6billion package of funding will help tackle NHS backlogs and invest in technology and data in a bid to improve efficiency and security within the health service.
The Treasury said the £5.9billion funding is on top of the Government’s plan to spend £8 billion to tackle the elective backlog over the next three years, and the £97 billion additional funding the Government has provided to support health and care since the start of the pandemic.
– Health research and development
The Department of Health and Social Care will receive £5billion over the next three years to fund research and development in areas such as genome sequencing and tackling health inequalities.
Part of the package will include genome technology to allow doctors to detect more than 200 conditions in babies, compared with existing tests which can only identify nine.
Some £95million of the funding will go towards the Office for Life Sciences to help with cutting-edge innovations to help treat cancer, obesity and mental ill health.
– A ‘skills revolution’
A cash injection of £3billion will be given to both post-16 education but also to adults later in life.
Mr Sunak will announce the number of skills boot camps in areas such as artificial intelligence, cybersecurity and nuclear will be quadrupled.
Some £1.6 billion will provide up to 100,000 16 to 19-year-olds studying for T-levels – technical-based qualifications – with additional classroom hours, while 24,000 traineeships will also be created.
– Tripling of funding for special educational needs and disabilities
New school places for children with disabilities and special educational needs will be created with a £2.6billion pot.
Mr Sunak is expected to almost triple the amount of this year’s capital funding for the most disadvantaged young people through specialised educational support, with up to 30,000 new spots made available.
– Housing on brownfield sites
The Treasury said a £1.8billion package of investment would help regenerate land and level up the country.
Mr Sunak will allocate £65million to ramp up England’s planning system, including digitisation that will make local plans easier to access and £9million to help local authorities create 100 new urban ‘pocket parks’ across UK.
– Global Britain Investment Fund
The £1.4billion fund will funnel money into key innovative sectors by handing out grants to encourage internationally mobile companies to invest in the UK’s critical industries, including life sciences and automotive.
The fund includes £354million to support investment in life sciences manufacturing, increasing resilience for future pandemics, and more than £800million investment in the production and supply chain of electric vehicles, including in the North East and Midlands.
A new talent network to attract high-skilled workers to the UK will also be set up in innovation hotspots, first in the Bay Area of San Francisco and Boston in the US in 2022, and also Bengaluru in India.
– Boost for museums and galleries
Over three years, £850million will ‘breathe life’ back into cultural hotspots. The money will be used to restore and upgrade some of the country’s most popular institutions such as London’s V&A museum, Tate Liverpool and the Imperial War Museum in Duxford.
A total of £125million will go towards helping build a state-of-the-art scientific research centre in Oxfordshire, part of the Natural History Museum.
In addition, more than £75million will be spent to help 110 regional museums and libraries improve their buildings and level up their digital facilities, the Treasury said.
– Protection at the border
Ageing Border Force vessels will be replaced by new cutters as part of a £700million investment to improve the safety of Britain’s borders.
The current fleet, which is 20 years old, will be retired and 11 new vessels will come into service to help tackle organised crime and illegal migration at a cost of £74million.
The announcement also includes £628million ‘to modernise and digitalise the border’, with proposals including a US-style Electronic Travel Authorisation for tourists wishing to come to the UK.
– Finding the next Emma Raducanu
Football pitches, tennis courts and youth facilities will see £700million of funding to help foster the next generation of young talent.
– Maths coaching
Up to 500,000 adults will be able to access a £560million scheme to improve their maths skills, as it was revealed more than eight million people in England have numeracy skills lower than those expected of a nine-year-old, with the North East, West Midlands and Yorkshire and the Humber worst affected.
Mr Sunak will say that through the Multiply programme, people can access free personal tutoring, digital training and flexible courses.
– The new Sure Start?
The Chancellor will announce a range of investments to give children the ‘best possible start in life’ totalling £500million towards support for families and children, including new family hubs.
Labour has criticised the plans and said it was a mistake to close Sure Start centres, which provided similar services.
Mr Sunak said the new scheme was different.
– Crime prevention
A £435million package of measures aimed at preventing crime will form part of next week’s Budget – with a focus on violent offences against women.
The Chancellor is expected to pledge millions for better CCTV and improved street lighting and give £80million in additional funding to the Crown Prosecution Service.
The Treasury said part of this funding will ‘improve the response to rape and sexual assault cases’.
– Dragons’ Den-style investors
Angel investors will be made available to businesses outside of London and the South East.
A £150million pot of funding for the British Business Bank will encourage the development of regional networks of Dragons’ Den-style angel investors to help make people’s dreams of starting a business a reality.
– Cutting-edge treatment for veterans
Innovative surgery which allows artificial limbs to be permanently fixed to bones could be available for veterans through research grants handed out by a new fund.
Some £5million will be put towards a new UK-wide Veterans’ Health Innovation Fund at the Budget and spending review on Wednesday.
The fund would be able to award research grants to develop new surgery techniques and treatment options for amputees and blast victims.
– Post-Brexit tax rule changes
Tax changes will be introduced to try to tempt more of the world’s largest shipping companies to UK shores.
Ships that fly the Union Jack and those which help the UK reach net zero will both be more likely to be accepted if applying to the UK’s tonnage tax regime.
Mr Sunak will deliver his Budget and spending review to the Commons on Wednesday.
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