What to expect when it comes to fuel, pensions and benefits

woman at ATM

Chancellor of the Exchequer Rishi Sunak will make his spring statement to the House of Commons on Wednesday.

Normally, it would just be to present new figures on the state of the economy, but many want him to go further and announce measures to combat steep rises in the cost of living.

Why is the cost of living rising?

When Mr Sunak presented his budget in October, he said the UK economy was expected to grow by 6% in 2022, following the rebound from the pandemic.

But a lot has happened since.

The cost of living continued to rise, for several reasons, including rising oil and gas prices.

Meanwhile, the war in Ukraine could further drive up food and energy prices.

The Bank of England has warned that inflation could hit 8% in the coming months and stay higher for longer.

If prices rise too much, consumers could be deterred from spending, which in turn could reduce economic growth.

Higher costs could also mean that companies could decide to delay their investments.

In these circumstances, the Chancellor may be forced to act given how quickly things have changed.

What measures could the Chancellor take?

Reduction of fuel taxes

Gasoline and diesel prices have soared in recent weeks, made worse by Russia’s invasion of Ukraine.

More than 50 Tory MPs have called for a reduction in fuel tax – it is currently 57.95p per liter (with 20% VAT applied on top).

Several newspapers reported that Rishi Sunak was considering a temporary reduction of up to 5 pence per litre.

However, opposition MPs have questioned whether this would go far enough – shadow chancellor Rachel Reeves suggests a 5p cut would only cut filling a car with petrol by £2.

Increase pensions

Experts have warned that those dependent on the state pension could be particularly hit by rising costs.

The state pension usually increases each year depending on whichever is greater – inflation, average salary increases or 2.5%. This is called triple locking.

However, last September the government suspended the triple lockdown due to concerns about how quickly wages were rising.

Since then, costs have skyrocketed. Inflation, which measures the increase in the cost of living over time, now stands at 5.5%, its highest level in 30 years.

Laura Suter, head of personal finance at AJ Bell, suggests the Chancellor could offer temporary targeted support or pledge to reintroduce the salary element into the triple lockdown from April 2023.

Increase benefit payments

Next month the government will increase benefits, such as Universal Credit, by 3.1%, but dozens of charities want the Chancellor to go further.

The Trussell Trust, which runs an extensive network of food banks across the UK, called the government’s planned increase “dangerously insufficient”.

Food bank volunteer

Food bank volunteer

Along with Save the Children UK and the Child Poverty Action Group, he urged Rishi Sunak to increase benefits by at least 7%.

Universal Credit claimants received an extra £20 a week during the pandemic, but that ended in October.

The government defended the decision to scrap the increase, saying it planned to widen eligibility for the Warm Homes rebate designed to lower energy bills.

National Insurance rise time

Business leaders and politicians from different parties have urged the Chancellor to delay a planned increase in National Insurance payments to fund health and social care.

From April, employees, bosses and the self-employed must pay an additional 1.25 pence in the pound of their wages.

Chart showing how much additional employees will pay as a result of NI changes

Chart showing how much additional employees will pay as a result of NI changes

There have been criticisms that this decision is unfair to the lowest paid, especially when the cost of living is rising. An employee with £20,000 a year will pay an additional £89 a year, for example.

Trade groups have also suggested it could be the “last straw” for companies struggling to cope.

Prime Minister Boris Johnson and Chancellor Rishi Sunak wrote in the Sunday Times in January insisting it was the ‘right plan’ and that it ‘must go forward’ to help end the NHS backlog.

Since then it has been reported that the Chancellor, instead of scrapping the increase altogether, may increase the point at which people start paying.

Analysis by the Resolution Foundation think tank suggests that raising the threshold to £12,500 would mainly benefit middle-income people.

But he said that, coupled with an increase in benefits, it could ‘provide much-needed respite for families in the year ahead’.