© . FILE PHOTO: UK Chancellor of the Exchequer Rishi Sunak attends a virtual press conference at 10 Downing Street in central London, UK on March 3, 2021. Tolga Akmen/Pool via REUTERS By William Schomberg LONDON () – The UK’s Chancellor of the Finance Rishi Sunak must make a decision next week to spend billions of pounds more to ease growing cost of living pressures on households and businesses as inflation rises. Sunak, who will release a budget update on Wednesday, aims to return the public finances of the world’s fifth largest economy to normal following a surge in COVID spending that pushed government borrowing to all-time highs in peacetime. But soaring inflation – which appears to be on track to above 8% after Russia’s invasion of Ukraine – has prompted calls for Sunak to dive back into the public treasury and provide more emergency aid. The cost of living tightness – also caused by higher Bank of England interest rates – will overshadow his plans to meet the longer-term challenge of recovering Britain’s weak productivity record when he makes his spring statement. Paul Johnson, director of the Institute for Fiscal Studies think tank, said Sunak was faced with a huge decision about whether or not to protect households from the surge in energy prices. “If he doesn’t, many on moderate incomes will face the biggest blow to their living standards since at least the financial crisis,” Johnson said. “If he does, there will be another major blow to public finances.” The IFS estimates Sunak would need to spend an additional £22 billion ($29 billion) if he were to restore the fair value of the household energy price support he promised last month, and to maintain the real size of government spending. industry wage increases he announced in his October budget. The UK Treasury says it has already pledged direct support to cost of living worth more than £20bn for this year and next. OTHER COUNTRIES HAVE ANSWERED Britain’s debt interest account for next year will also rise by a similar amount by some estimates. About a quarter of UK government loans pay interest linked to retail price inflation. and Sunak has an estimated £20-30 billion leeway within its tax rules. But analysts at bank Investec said Sunak may need to raise tax revenues to fund a new household support package. “A windfall tax on oil and gas producing companies would be one possibility. Another would be to do nothing now and postpone a decision until later in the year,” the analysts said. Other governments have reacted to the latest surge in energy prices. France and Sweden will subsidize fuel costs for cars. Germany and Italy are considering similar plans. Businesses are also demanding support measures ranging from the suspension of Social Security hikes in April to more tax breaks to encourage business investment. Last month, Sunak outlined his strategy to boost productivity in the UK economy through tax incentives for investment in equipment and research and development. That could boost Britain’s sluggish economic growth in the longer term and allow Sunak to cut taxes, something many members of his Conservative party are demanding. Right now, the government’s tax intake will reach its highest level since the 1950s after Sunak announced a social security contribution hike – which he has insisted will start as late as April – and a major corporate tax hike in 2023. ($1 = £0.7631) Disclaimer: Fusion Media would like to remind you that the data on this website is not necessarily real-time or accurate. All CFDs (Stocks, Indices, Futures) and Forex prices are not provided by exchanges but rather by market makers, and therefore prices may not be accurate and may differ from the actual market price meaning prices are indicative and not suitable for trading purposes . Therefore, Fusion Media does not bear any responsibility for any trading losses that you may incur as a result of using this data. Fusion Media or anyone associated with Fusion Media accepts no liability for any loss or damage resulting from reliance on any information, including data, quotes, charts and buy/sell signals on this website. Be fully informed about the risks and costs associated with trading the financial markets, it is one of the riskiest forms of investment possible.
