Six measures Rishi Sunak could take to combat UK’s cost-of-living crisis

The chancellor is facing growing demands to tackle the effects of inflation and the effects of the Ukraine invasion

Rishi Sunak is under pressure from Tories and the opposition to make this week’s spring statement into an interventionist mini-budget to tackle the cost of living and impact of the Ukraine war. Here are the key issues:

National insurance

Labour and Tory backbenchers are pressing for April’s planned rise in national insurance to be delayed or scrapped. Announced by Sunak and Boris Johnson last autumn to raise funds for the NHS and social care, it is expected to bring in £12bn. The pair used a joint letter to a Sunday newspaper to commit to the policy. This could make reopening the issue politically difficult. Calls to scrap it have multiplied given the UK’s worsening cost-of-living crisis and a stronger than expected performance for the economy and government finances in recent months.

Universal credit

Benefits usually increase in April by the previous September’s rate of inflation, which was 3.1%. Experts say that while the system works when inflation is stable, the recent growth in living costs calls for a bigger rise. The Bank of England says inflation could hit 8% this April.

Raising benefits by more than planned could constitute an embarrassing U-turn for the chancellor, who staked his reputation on a £20 a week cut in universal credit last October – despite warnings of mounting pressure on households.

Fuel duty

Surging oil prices since the Russian invasion of Ukraine have sent the price of petrol to record highs. Tory backbenchers are pushing for a tax cut. Fuel duty is 57.95p a litre, plus 20% VAT. The Conservatives have frozen fuel duty for 12 years but campaigners say this clashes with net-zero ambitions.

Energy production

Concerns over energy security have fuelled calls for more domestic production. Some Conservatives want fresh investment in shale gas, or net zero rules relaxed for North Sea oil or coal-fired power. Labour want a windfall tax on energy producers, which have benefited from high prices, with the proceeds earmarked for supporting vulnerable families.

Defence

Senior Tories, including former cabinet minister Jeremy Hunt, have urged Sunak to increase defence spending after the Ukraine invasion. Germany is setting up a €100bn fund to strengthen its armed forces. The UK spent 2.3% on defence in 2021, Germany 1.5% and the US 3.5%.

Business investment

Bosses are pressing Sunak for tax and spending plans to encourage business investment. The UK is lagging on this: it plunged after the Brexit vote and again in the pandemic. Despite Sunak’s “super deduction” tax break, investment is expected to fall again in 2022. The CBI has called for a permanent tax deduction on investment to encourage companies to spend, which could offset plans for corporation tax to rise from 19% to 25% from April 2023. Economists suggest higher rates of business investment could help boost the UK’s economic productivity after stalling progress in recent years – helping to raise the rate of economic growth and living standards.