Rishi Sunak's planned tax cuts 'will benefit the wealthiest'

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·Political Correspondent, Yahoo News UK
·4-min read
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tax cuts
Senior economists have warned tax cuts to tackle the cost-of-living crisis will benefit wealthy households the most. (Reuters)

Rishi Sunak's pledge to cut taxes will benefit those on higher incomes amid soaring cost of living, senior economists have warned.

The scale of the financial challenges facing many Brits was laid bare on Wednesday when the Office for National Statistics (ONS) revealed Brits are facing the highest inflation in 40 years.

The consumer price index (CPI) inflation hit 9% in the 12 months to April 2022, with retail price index inflation (RPI) reaching 11.1%.

Read more: Martin Lewis warns of 'civil unrest' as cost-of-living crisis hits millions

The spike in inflation comes in the aftermath of energy price cap jumping by 54% in April, adding £700 to the typical household bill - a key factor for inflationary pressure.

On Wednesday, the chancellor pledged he will "stand ready to do more" on the cost-of-living crisis - and promised to cut taxes for businesses in the future.

Sunak has also pledged to cut income tax by 1p in 2024, the year of the next election.

However, he has failed to announce any significant interventions to help struggling households in recent months - despite being warned in March that 1.3million Brits will fall into poverty in 2022/23 without extra support.

File photo dated 15/10/21 of a shopper looking at the salad and vegetables in a branch of Waitrose in south London. Around one in seven adults live in homes where people have skipped meals, eaten smaller portions or gone hungry all day because they could not afford or access food, research suggests.Issue date: Monday May 9, 2022.
CPI inflation hit a 40 year high on Wednesday. (PA)

Amid the deteriorating situation, a number of the government's own MPs - including foreign secretary Liz Truss - are backing tax cuts as a way of tackling the crisis.

Truss has called for a "low-tax economy" - with Scottish secretary, Alister Jack, claiming cutting taxes is "how you get money into people’s pockets”.

However, many experts say the best way to help those suffering the most with higher prices are measures like up-rating benefits in line with inflation, or targeted energy bill support.

Read more: Rishi Sunak's 'economic storm' warning prompts louder calls for emergency budget

George Dibb, head of centre for economic justice at the IPPR think tank, warned tax cuts will help those who need it least.

"Tax cuts will disproportionately help the wealthiest, who already have big cash savings from the pandemic," Dibb tweeted on Thursday.

"Many of the poorest pay little to no tax and won't benefit from but who are suffering the worst effects of the cost of living crisis".

May 2022 inflation correct one
Inflation is soaring in the UK. (ONS)

Torsten Bell, chief executive of the low and middle income think tank the Resolution Foundation, also criticised the prospect of tax cuts.

“A great solution for backbench MPs, but a terrible solution for a cost-of-living crisis hitting low-and-middle-income households hardest," said Bell, according to The Times.

"Cutting income tax would put money into the pockets of those least affected by the cost-of-living crisis.”

Daniel Tomlinson, senior economist at the same organisation, said tax cuts "are not the answer" to the problem.

Read more: Global recession a 'genuine concern', Western officials warn

"It's not just that low-income families have less room to absorb shocks when they happen," he said.

"But that this shock is causing a bigger hit to their living standards than it is to those on higher incomes."

On Wednesday the Institute for Fiscal Studies (IFS) said inflation for low income households will surpass 10% compared to others because they spent a greater proportion of their income on energy and food.

Shadow chancellor Rachel Reeves gives an outside interview as she arrives at BBC Broadcasting House in London, to appear on the BBC One current affairs programme, Sunday Morning. Picture date: Sunday March 20, 2022.
Shadow chancellor Rachel Reeves has called for an emergency budget and a windfall tax to help tackle the rising cost of living. (PA)

"Because so much of the [inflation] increase was driven by the increase in the gas and electricity tariff cap, poorer households who spend more of their budgets on gas and electricity, faced an even higher rate of inflation," Heidi Karjalainen, a Research Economist at the IFS.

"We estimate that the poorest 10% of households faced an inflation rate of 10.9%. State benefits only increased by 3.1% in April."

Labour has called for an "emergency budget" in response to the crisis and reiterated calls for windfall tax, while describing the government's failure to act as "unconscionable".

Watch: Labour: What is the chancellor waiting for?

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