Why working people lose out from Rishi Sunak’s spring statement: ‘It’s indefensible’

British Chancellor of the Exchequer Rishi Sunak speaks at a statement on the economic update session, at the House of Commons in London, Britain March 23, 2022. UK Parliament/Jessica Taylor/Handout via REUTERS  ATTENTION EDITORS - THIS IMAGE HAS BEEN SUPPLIED BY A THIRD PARTY. MANDATORY CREDIT. IMAGE MUST NOT BE ALTERED.
Chancellor Rishi Sunak's tax announcements have been branded 'indefensible' by Paul Johnson, director of the Institute for Fiscal Studies. (Reuters)

The chancellor's decision to push ahead with hikes to national insurance while slashing income tax, has been branded "indefensible" by one of the UK's leading economists.

Rishi Sunak announced a new package of measures in the House of Commons on Wednesday in his Spring Statement in a bid to help Brits with the spiralling cost-of-living crisis.

The chancellor confirmed he was pressing forward with controversial plans to raise national insurance contributions (NICs) by 1.5 percentage points – meaning most people will pay 10% more – from April.

Following widespread criticism of the policy, he also announced the threshold at which people start paying NICs would rise by £3,000.

Read more: Household disposable incomes to plummet at fastest rate in 70 years

In addition, Sunak unveiled plans to reduce income tax from 20% to 19% in 2024.

He told MPs: “My tax plan delivers the biggest net cut to personal taxes in over a quarter of a century."

However, the changes to NICs and income tax have been criticised for penalising working people while benefiting those with unearned incomes, such as rental income or dividends on shares.

Paul Johnson, director of the Institute for Fiscal Studies (IFS), said the move “looks indefensible from an economic point of view - though one can see the political attractions".

British Prime Minister Boris Johnson and Chancellor of the Exchequer Rishi Sunak react at a statement on the economic update session, at the House of Commons in London, Britain March 23, 2022. UK Parliament/Jessica Taylor/Handout via REUTERS  ATTENTION EDITORS - THIS IMAGE HAS BEEN SUPPLIED BY A THIRD PARTY. MANDATORY CREDIT. IMAGE MUST NOT BE ALTERED.
Rishi Sunak has been branded a "fiscal illusionist" in his claims about lowering taxes when they're set to hit their highest levels in decades. (Reuters)

At the IFS' Spring Statement debrief on Thursday, he said: "While the increase in the NI [National Insurance] floor is welcome, it is hard to think of any good reason to increase the rate of NI and cut the rate of income tax.

"That again benefits those living off pensions and unearned incomes at the expense of workers."

Furthermore, the changes do not provide financial support to people unable to work, such as disabled people claiming state benefits - who are among those most vulnerable to the cost-of-living crisis.

"He increased the floor for NICs and promised a cut in income tax in 2024, so Mr Sunak’s statement contained big new tax cuts," said Johnson.

"But it also allowed taxes to rise. He can now expect to raise more in tax as a share of national income by 2025 than he expected last October.

"In fact, taxes are set to rise to their highest level as a fraction of national income since Clement Attlee was prime minister. Not my comparison, that comes directly from the OBR [Office for Budget Responsibility]."

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Johnson referred to the chancellor as a "fiscal illusionist" on taxes, also lamenting his decision not to up-rate benefits in line with inflation - leaving the most vulnerable on state security benefits facing an £11bn real terms cut.

"He had tough decisions to make. Other choices were available," he added.

Tom Waters, senior research economist at the think tank, has said Sunak is "giving with one hand in tax, having previously taken away with the other."

Rishi Sunak visited a Sainsbury's after delivering his Spring Statement on Wednesday to fill up somebody's car with petrol. (HM Treasury)

On Wednesday, the OBR said soaring inflation and energy bills will trigger the biggest drop in living standards since records began - and Brits won't see their living standards recover to pre-pandemic levels until 2024-25.

Elsewhere, at a Resolution Foundation Spring Statement debrief on Thursday, experts joined criticism of the chancellor's announcements.

“[The chancellor] can’t yet claim to be a tax cutter - we’ve got 27 million out of 31 million workers ending up paying more tax," said James Smith, research director at the think tank.

Gemma Tetlow, chief economist at the Institute for Government, said: “There is nothing on strategy when it comes to personal taxes... looking at what Sunak has done so far, it’s very hard to discern any strategy there."

Read more: 'Woefully out of touch': The group of people ignored by Rishi Sunak’s spring statement

And, on Wednesday, Resolution Foundation executive Torsten Bell said the chancellor was most concerned about "re-building his tax cutting credentials" than helping struggling Brits.

However, Downing Street on Thursday said it stood by the chancellor's announcements despite mounting criticism.

"We need to keep a close and watchful eye," a Number 10 spokesperson said.

“As the Chancellor has said before, we are there to support the public when needed, as we have been throughout. These are unprecedented times coming after the global pandemic and war in Europe.”

Watch: Rishi Sunak confronted by mother who can’t afford to heat her home