Home Business News Sunak spends £37bn on cost-of-living crisis, the same as all self-assessment income tax payments in 2021/22

Sunak spends £37bn on cost-of-living crisis, the same as all self-assessment income tax payments in 2021/22

by LLB Finance Reporter
26th May 22 1:53 pm

The Chancellor Rishi Sunak has announced on Thursday that he will give 8 million households £650 towards their energy bills which does not have to be paid back.

leading tax and advisory form Blick Rothenberg have said that the Chancellors grant of £37bn is equal to the total income tax paid through self-assessment tax returns for 2021/22.

Robert Pullen said, “After weeks of denials, delay and dithering, the Government finally announced a spate of cost-of-living support measures today, ranging from giveaways of £650 per household to converting the previously announced discount on energy bills from a loan to a grant.

“The total cost of all the measures announced this year is now estimated by HM Treasury to be £37bn, which is equal to the total income tax paid through self-assessment tax returns for 2021/22.

“The measures announced today will no doubt come as a welcome relief to many of the struggling households in the UK (with similar measures announced in Scotland, Wales and Northern Ireland). Rishi also appears to have learnt from the calamitous administration problems created with previous measures, as we are told the process and paperwork will be far simpler.

“However, the devil is, as always, in the detail and it is possible that many other individuals could miss out on support entirely or receive very little. With spiralling inflation and costs being incurred now, with more to come in the Autumn, calls demanding more help for the squeezed middle, particularly workers who are being hit hard by increasing costs and the higher national insurance contributions, are likely to continue.

“Whether Rishi will announce further support, or changes to the tax system more widely such as a speculated reduction in the income tax rate or increases to the long frozen basic rate band (which is being severely eroded by inflation), remains to be seen.”

Heather Self a partner at the firm added, “The Chancellor has, at last, provided generous support to those hit hardest by rising energy prices.

He will:

  • Double the energy bill rebate, from £200 to £400, and make it permanent rather than clawing it back over 5 years
  • Give pensioners an additional Winter Fuel payment of £300 this winter
  • Ensure that most of those on the lowest incomes will receive £650 in cash, to be paid in two instalments

The total package will cost about £15bn, in addition to the £22bn from the Spring Statement.  These are significant sums and should be a real help to the poorest households.

Inevitably, there will be those just above the thresholds who receive little or no help – for example, a young person in work (and not on benefits) who receives the £400 energy bill rebate only if they are the named bill payer. Many such people will share a house with others or will move out to their own house just after the qualifying date for the rebate, and so will not benefit, the “squeezed middle” will be squeezed harder.

However, no Government can give money to all of the people all of the time – to do so risks stoking inflation, so that in the end there is no real benefit to anyone. The longer-term solution is to stimulate the economy, which is not an easy objective to achieve.

The bill for the support will be partly met by a windfall tax (to be known as a “temporary energy levy”) which will apparently raise about £5bn.

Here the Chancellor has bowed to political pressure, and Labour will be delighted that their proposal has been adopted.  The levy will be set at a high rate of 25% but will be offset by additional capital allowances for investment, which will reduce the overall impact – and will add yet more complexity to the tax system.

It will include a ‘sunset clause’, so that it will expire automatically after an initial period – but sunset clauses can be difficult to implement in practice, and we all know that income tax itself was introduced as a temporary tax over 200 years ago.

Overall, this is a generous package of measures, which will provide real help to many of those in most need. But yet again, we see a Chancellor introducing further significant measures, just weeks after his Spring Statement.

He does need to develop a strategy rather than just keep responding to the latest crisis.”

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