Rishi Sunak sets up war chest for pre-election UK tax cut

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Cuts in National insurance and fuel duty were among the highlights of Rishi Sunak’s Spring Statement today, but the UK chancellor banked most of a windfall in public finances as a war chest for tax cuts ahead of the next election, with minimal help provided to households and services hit by surging inflation.

Sunak hailed the raising of the National Insurance threshold by £ 3,000 to £ 12,570, bringing it into line with the point at which people start paying income tax, as “the largest single personal tax cut in a decade”. However, the promised income tax cut from 20p to 19p in 2024 brought criticism that – as recent experience has taught us – two years is a long time in economics and the state of public finances that far ahead is far from certain.

There was also criticism that the cuts in National Insurance would be wiped out by the new health and social care levy that takes effect next month, with the Labor opposition hitting out at “Alice in Wonderland” economics that did little to help struggling families cope with soaring energy bills. Similar criticism came from energy and environmental groups, while lobby groups attacked the “sticking plaster” support on offer from the chancellor.

Column chart of annual% change, showing the OBR forecasts the biggest fall in UK living standards since records began in 1956-57

Sunak’s day began with the news that UK inflation hit a 30-year high of 6.2 per cent in February. The monthly rise of 0.8 per cent was the fastest since 2009, showing the impact of surging global prices on energy, petrol, food and durable goods. An even steeper rise is due next month when new energy prices kick in.

New economic projections from the Office for Budget Responsibility, unveiled by Sunak in his speech, added to the gloom. The OBR expects inflation to average 7.4 per cent this year and GDP to grow 3.8 per cent in 2022 and 1.8 per cent in 2023.

The OBR also forecast that household energy bills would increase by a further £ 830 a year from October and living standards in 2022-23 would fall by the biggest amount in any financial year since records began in 1956-57.

Economics editor Chris Giles in his dissection of the smoke and mirrors of today’s speech characterized it thus: “stealthy tax increases, stealthy real public spending cuts and very headline public tax cuts”.

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Need to know: the economy

The energy crisis continues. The US and its allies will announce an escalation of sanctions on Russia during President Joe Biden’s trip to Europe which begins today, including more action against the Russian oil sector. Germany is still holding firm against a full embargo of Russian energy. Russia in the meantime is cutting back capacity on a key pipeline delivering crude to global markets and said it would switch European payments for gas supplies to rubles. Our Energy Source newsletter discusses the commodity’s weaponisation.

EU leaders will discuss joint purchasing and gas storage facilities at a two-day summit starting tomorrow, our Europe Express newsletter reports. Belgium’s prime minister told the Financial Times that member states needed to avoid a fight for deals in a rush to replace Russian supplies. In the UK, Prime Minister Boris Johnson is expected to push through proposals for more onshore wind farms as part of a new energy supply strategy.

Traders at the FT Commodities Global Summit warned of a looming global diesel shortage and a “broken” European gas market. Premium FT subscribers can gain free access to videos of the sessions once the summit ends by using the promo code: PREMIUM2022.

Soaring oil and gas prices and the potential for shortages are stark reminders that the road to cleaner energy is far from smooth. Join us on April 7 for our Energy Source Live Summit where we will take a deep dive into the issues set to reshape the US energy industry. Register here today.

Latest for the UK / Europe

The US has agreed to ease steep Trump-era tariffs on UK steel and aluminum products from June 1. The UK in return will lift tariffs on US bourbon as well as agricultural and other goods.

Andy Haldane, outgoing head of the government leveling up task force and former head economist at the Bank of England, told the FT the cost of living crisis would hit left-behind areas the hardest.

Germany’s Ifo Institute slashed 2022 growth forecasts for Europe’s largest economy to between 3.1 and 2.2 per cent, from its earlier prediction of 3.7 per cent, citing surging commodity prices, sanctions, supply bottlenecks and increased economic uncertainty. The FT editorial board warned of the dangers to the European economy from low growth and high inflation and the importance of the ECB revising and adapting plans to adapt to changing circumstances.

Global latest

Despite the enormous effects of the war in Ukraine, global monetary policy must continue to focus on controlling inflation and inflationary expectations, writes chief economics commentator Martin Wolf. Countries need to apply their fiscal resources to look after refugees and help the poorest from the impact of surging food prices, he argues.

Column chart of simulated impact on GDP in first full year after the invasion (%) showing Russia's war on Ukraine is a big shock to the world economy

Bookmark this: The FT inflation tracker shows country by country trends in inflation indices with breakdowns for energy and food costs.

Given how badly the world has done in distributing vaccines equitably, the omens for how it will deal with the looming food crisis are not good, says the FT editorial board. Sanctions against Russia are entirely justified, it adds, but richer countries must cushion the blow for poorer ones caught in the crossfire. Ireland has launched a € 12mn crop cultivation scheme to boost grain production.

Imran Khan came to power in Pakistan as a populist, religious reformer with a promise to end corruption and fix longstanding economic problems. But as our Big Read explains, soaring inflation and deteriorating living standards threaten his political future.

Line chart of annual change to consumer prices (%) showing Rrsing inflation in Pakistan has dogged Imran Khan's rule

Need to know: business

Nestléthe world’s largest food company, is to halt sales of most of its products in Russia after criticism from Ukraine’s leaders over its presence in the country.

GDP Paribas, the eurozone’s biggest bank, and Crédit Agricole have joined others in severing ties with Russia. French rival Société Générale is among the foreign banks with the biggest exposure via its Rosbank network, but has yet to clarify its intentions, warning of extreme scenarios such as an expropriation of its assets. Yesterday, Ukraine’s central bank chief urged international banks to cease all business in Russia.

Companies face a huge increase in bills if ministers allow Gazprom‘s UK energy supply business to go bust, industry leaders have warned. Many of its 30,000 corporate customers are on contracts negotiated long before the current spike in prices began.

Chinese companies are walking a fine line between conducting normal business in Russia and bankrolling its war against Ukraine, writes our China economics reporter Sun Yu. Some have decided there is too much risk trading with their northern neighbor as sanctions tighten, but others are determined to expand their trade.

International business editor Peggy Hollinger says foreign businesses in China need to learn lessons from the exodus from Russia of companies fearing sanctions or backlashes from customers. One economist described it as a “case study for how the global system can unravel”.

Carnivalthe world’s biggest cruise company, has warned that rising fuel prices caused by the Ukraine crisis would knock back its recovery, just as “wave season” begins and countries relax pandemic travel restrictions. Saga also warned of the hit from the Omicron variant and the Ukraine crisis on its travel business.

The pandemic-fueled boom in online shopping has been great for warehouse businesses. Prologis, the world’s largest warehouse owner, is bidding € 21bn to buy Blackstone’s portfolio of 2,000 properties in what would be the biggest-ever private real estate deal. “Safe and sexy together rarely describe any investment. In today’s uncertain environment, they do apply to warehouses and logistics, ”says Lex.

Chief business commentator Brooke Masters says some companies are honest about passing cost increases on to customers, but others are practicing “shrinkflation”By reducing the size of their products. Penny pinching is also spreading beyond consumer goods to restaurants and hotels, she adds.

Two sizes of Wispa bar
Cadbury owner Mondelez insists a cut to the size of multipack Wispa chocolate bars is part of a ‘proactive strategy to help tackle obesity’ © Roy Perring / Alamy

The World of Work

The “leakiness” of modern work into evenings and weekends has left many feeling starved of time, writes employment columnist Sarah O’Connor, leading to a new push for the four-day week. Properly managed, the shift could benefit employers as well as employees, she argues.

Two years of limited interactions with our office colleagues may have meant fewer opportunities for workplace relationships, but is that a good or bad thing? Our latest Working It podcast discusses the pros and cons of office romance.

Covid cases and vaccinations

Total global cases: 466.8mn

Total doses given: 11.1bn

Get the latest worldwide picture with our vaccine tracker

And finally. . .

The organizers of the Oscars would love this weekend’s Academy Awards to be a comeback story after last year’s low-key (and low ratings) Covid-affected ceremony. Can the grand bash filled with star names and box office successes help draw back public attention?

Montage of Oscar-nominated films
© FT montage

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