Brace for the cost of living ‘CATASTROPHE’: Squeeze ‘worse than credit crunch’ with energy and food bills soaring, NI hike looming and 1.2m people facing being dragged into 40p tax rate
Ministers are scrambling to find a way of defusing a mounting cost of living ‘catastrophe’ today with energy and food bills soaring and the tax burden getting heavier.
Experts have warned that the squeeze could be even worse than the credit crunch 14 jare terug, thanks to a toxic combination of spiking prices, the looming national insurance hike, and over a million people being dragged into the higher rate of tax.
Tory MPs are hitting the panic button over the prospect of the eye-watering £12billion NI increase taking effect in April, with the backlash sparking a tense standoff between Jacob Rees-Mogg en Rishi Sunak in Cabinet this week.
The Chancellor is defying calls to abandon the 1.25 percentage point bump, which is intended to fund the NHS catch-up after Covid and social care reforms.
Intussen, frantic discussions are continuing between government and the energy industry about how to ease the pain of surging gas costs for families. Households could see their bills go up another 50 per cent in the Spring, when the level of the cap is due to be adjusted in line with wholesale prices.
And new figures have suggested that another 1.2million people will be pulled into the 40p tax rate over the next four years, after the threshold was frozen as part of Mr Sunak’s desperate efforts to balance the books after the pandemic.
In 'n rondte onderhoude vanoggend, business minister Paul Scully insisted the government is looking at ways to ease the pressure.
But he was also left squirming on Sky News as he struggled to say how much a pint of milk costs – blustering that he bought it in ‘large cartons’ and as part of bigger shops.
Boris Johnson (reg) and Rishi Sunak (links) are scrambling to find a way of easing the cost of living crisis
Backbenchers warned the Chancellor the 1.25 per cent national insurance rise coming into force in April would worsen the pressures on family finances
In 'n rondte onderhoude vanoggend, business minister Paul Scully insisted the government is looking at ways to ease the pressure
Households are being hit by rising inflation and heating bills, and the energy price cap – which sets the maximum charge for 15million customers on standard variable tariffs – is set to be raised in April.
Economic experts added to the warnings last night about the pressures facing families struggling with the rocketing cost of living.
Paul Johnson, the director of the Institute for Fiscal Studies, het die Telegraaf people faced a squeeze this year that ‘could well be worse than the financial crisis’.
Torsten Bell of the Resolution Foundation think tank added: ‘April in particular is going to be a cost of living catastrophe, and the year as a whole will be defined by the squeeze.’
Mr Rees-Mogg urged Boris Johnson at a Cabinet meeting on Wednesday to scrap the NI rise – pointing to scope for savings elsewhere, including in the civil service.
Mr Sunak is believed to have slapped down the idea of a rethink on the levy during the meeting – pointing out that money had to be found from somewhere.
Downing Street has insisted there are ‘no plans’ to scrap or delay the increase despite a growing Tory backlash.
Labour and some Tory MPs are calling for VAT on energy bills to be cut, but the premier has played down the prospect, with speculation that help is more likely to be targeted on low-income households.
Mr Johnson is expected to try to take personal charge of the crisis next week by holding meetings with the industry, after firms apparently demanded huge taxpayer support in talks with Business Secretary Kwasi Kwarteng.
Mr Sunak stood by the NI hike yesterday, sê: ‘It’s always easy to duck difficult decisions but I don’t think that’s the responsible thing to do.’
But Craig Mackinlay, of the Net Zero Scrutiny Group of Tory MPs, said it was ‘not too late’ for the Chancellor to change his mind.
Hy het bygevoeg: ‘With the cost-of-living crisis even more acute today on the back of a big increase in energy bills, to further the pressure on households with a national insurance rise will simply add to family and inflationary pressures.’
Tory MP Andrew Bridgen said the Chancellor would come under ‘increasing pressure’ to scrap the NICs rise. He suggested the Tories could suffer at the local election in May if the Government does not act.
Former minister John Redwood told MailOnline yesterday: ‘It would be very surprising if Cabinet members were not discussing this. It is what the back benches and the country are discussing.
‘The Cabinet ought to change its mind on this topic. They led the manifesto which ruled out a national insurance rise.’
Sir John pointed the finger at Mr Sunak, saying he was fixated on unreliable forecasts from officials.
Last month Brexit Minister Lord Frost resigned from the Cabinet citing high taxation as one of his major concerns.
Analysis by the House of Commons Library suggests the Treasury’s decision to freeze the personal tax allowance and higher rate tax threshold until 2026 will push 1.2 million workers’ earnings into the 40p rate of tax.
The freeze on thresholds will also mean an additional 1.5million people on low pay will be dragged into paying income tax.
Regional figures requested from the Commons Library by the Lib Dems show London and the South East are set to be hardest hit by the stealth tax, with an average hit to incomes of £500 per household.
Paul Johnson, the director of the Institute for Fiscal Studies, told the Telegraph people faced a squeeze this year that ‘could well be worse than the financial crisis’
Jacob Rees-Mogg , the Commons Leader, called for the NI hike to be scrapped during a Cabinet meeting this week
Across all regions, household disposable incomes are estimated to be 1 per cent lower in 2025/26 than they would be if there was no freeze to income tax thresholds.
That equates to £430 per household.
Lib Dem Treasury spokeswoman Christine Jardine said: ‘People are worried about the rising cost of living and paying their bills this winter.
‘Now they face years of tax rises under a Conservative government that is taking them for granted.’
Arbeid, intussen, accused the Conservatives of trapping the country in a ‘high tax, low growth cycle’.
Shadow Chief Secretary to the Treasury Pat McFadden said: ‘The Tories’ national insurance rise along with other tax hikes is leaving working people with the biggest tax burden in 70 jare.
‘They are trapping us in a high tax, low growth cycle which we must break out of. Ministers could ease the burden right now by cutting VAT on home energy bills.’
The Federation of Small Businesses also urged the Chancellor to scrap the tax hike. Mike Cherry, its national chairman, gesê: ‘Firms paying thousands extra in energy costs shouldn’t be made to hand over even more to the taxman – just to keep employing their staff.’
Baroness Altmann, a former pensions minister, said the NICs hike was a ‘separate unfairness’ to the energy rise but urged the Government to reverse the planned increase regardless.
Adam Scorer, chief executive of fuel poverty charity National Energy Action, urged the Government to first extend provisions such as the Warm Home Discount Scheme and Winter Fuel Payment – which take money off people’s energy bills.