Rishi Sunak says he chose tax cuts over welfare support but accepts tax burden rising

Rishi Sunak was explaining his spring statement to MPs at the Treasury Committee. Credit: Parliament.tv

A boost in welfare support was left out of the recent mini-budget because tax cuts took priority, Rishi Sunak has told MPs as he admitted the overall tax burden is rising this year.

The chancellor, explaining his financial plan for the forthcoming year to the Treasury Committee, said he "made a choice to cut taxes on working people" and accepted "someone else sitting here could have chosen £6 billion on the welfare system".

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He was referring to his lifting of the National Insurance threshold, so more of the lowest earners are exempt from making contributions, a 5p cut to fuel duty, and a 1% cut to income tax planned for next year - three policies he chose instead of increasing Universal Credit payments, as Labour had hoped he would.

Mr Sunak said it was better to cut taxes in a bid to shield people from inflation reaching a predicted 8.7% this year rather than increase spending on benefits.

The committee chairman Mel Stride said the chancellor had done "very little" for those who were out of work and relying on benefits.

Mr Sunak responded: "If someone's view is government can or should make everybody whole for inflation - particularly inflation at these levels caused by global supply factors - then that's something that I don't think is doable."

He said that raising benefits by the current rate of inflation rather than what it was last September would have added £25 billion to government borrowing in the period up to 2026-27.

He said that "irresponsible" borrowing levels risked stoking inflation even further adding to the pressure on living standards.

"We are already forecast to borrow in this coming year about 60% more as a percentage of GDP than our post-war average, 20% more as a percentage of GDP than we were forecast to borrow in October, so it is already a significant amount of borrowing," he said.

"My view is an excessive amount of borrowing now is not the responsible thing to do."

Labour's Angela Eagle said that by refusing to increase welfare support in his spring statement, he had "made a political choice to plunge 1.3 million people, including half-a-million children into absolute poverty".

Rishi Sunak denies choosing to plunge thousands into poverty:

Mr Sunak said "there's a choice about where to target that support. I appreciate that people might have wanted to do more on welfare, less to cut tax to people in work."

He said there is £350 of support to help people deal with rising energy bills, which is made up of a £150 council tax rebate for houses in bands A-D to come in April, and a £200 discount on bills in the form of a loan from October.

The chancellor admitted the overall tax burden was rising, despite making some tax cuts, because the government is increasing spending on public services, such as the NHS, and repairing public finances damaged by the coronavirus pandemic.

He said it would be his priority to cut taxes going forward, rather than increase them.

Labour's Siobhain McDonagh said the chancellor was a "fiscal illusionist".

"We have tax burden rising to highest level since 40s, the worst fall in living standards since the 50s, public sec net debt reaching the highest level since the 60s, real earnings growths facing the largest one year drop since the 1970s. "But you gave most people absolutely nothing for most people, particularly the most vulnerable, in your spring statement."

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Mr Sunak rubbished the criticism, saying the reason that the tax burden is rising "is a direct result of the fact that the government is continuing to invest very strongly in public services across this parliament at historically very high levels".

Mr Sunak suggested there could be more support with the cost of living coming in October, when the energy price cap is expected to rise again after increasing by around £700 at the start of April.

Money Saving Expert Martin Lewis has estimated that the price cap could experience a £1,300 year-on-year rise when it increases in autumn.

He said: "It clearly is very difficult today to speculate on energy prices in the autumn. Let’s wait until we get there."

Mr Sunak said his decision to cut the basic rate of income tax by 1% from 2024 would inject "discipline" into the debate about public spending levels.

"Now having something to aim for means that hopefully we can have a more disciplined conversation about incremental public spending at this point, which is already at very high levels," he said.

"My priority at this point forward is to keep cutting taxes, not increased public spending."

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