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Tuesday May 24th, 2022 6:26PM

UK budget update disappoints consumers as inflation soars

By The Associated Press
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LONDON (AP) — Britain’s Treasury chief on Wednesday announced a package of tax cuts and support payments that fell far short of what consumer advocates had demanded to shield working families from the soaring cost of living, triggering criticism that he doesn’t understand the scale of the crisis.

Rishi Sunak cut fuel taxes by 5 pence per liter, increased the level at which people begin paying for social insurance and said the government would provide an additional 500 million pounds ($659 million) for local councils to use to assist low-income residents. But the situation was already dire, with inflation at its highest level in 30 years and the impact of Russia's war in Ukraine eating into forecasts for economic growth.

“The government will support the British people as they deal with the rising costs of energy," Sunak told the House of Commons. “People should know that we will stand by them, as we have throughout the last two years.’’

He rejected calls to delay a 1.5% increase in income taxes set for next month and offered no tax on windfall profits from energy companies benefiting from the rising cost of oil and natural gas. The tax was the central demand of the opposition Labour Party, which immediately attacked the plan from Prime Minister Boris Johnson's government.

“For all his words, it is clear that the chancellor does not understand the scale of the challenge,’’ said Rachel Reeves, the Labour Party’s spokeswoman on Treasury issues. “He talks about providing security for working families, but his choices are making the cost-of-living crisis worse, not better.”

Sunak also pledged Britain would continue its “unwavering” support for Ukraine and seek to strengthen the domestic economy to counter the threat posed by Russia. But he offered no fresh defense spending.

“When I talk about security, yes, I mean responding to the war in Ukraine,” Sunak said. “But I also mean the security of a faster-growing economy. The security of more resilient public finances. And security for working families as we help with the cost of living.”

Sunak had come under pressure to announce further measures to help consumers facing what one economist has called “the biggest year-on-year fall in household incomes in a generation.” Utility bills are set to rise by more than 50% in April, on top of the planned income tax increase and high consumer prices.

Inflation increased 6.2% in the 12 months through February, a 30-year high, the Office for National Statistics said Wednesday. The spike was driven by rising prices of energy, goods and food and comes as the Bank of England has raised interest rates three times since December to try to cool off inflation.

The managing director of grocery firm Iceland, Richard Walker, told the BBC that the pressure to keep prices down was “relentless.” He called for action on high energy prices.

“It’s incredibly concerning. We’re hearing of some food bank users declining potatoes and root veg because they can’t afford the energy to boil them,” he said.

The Office for Budget Responsibility, an independent advisory body, released updated forecasts showing that the war is likely to slow growth and fuel inflation.

It estimates that the economy will grow 3.8% this year and 1.8% in 2023. In October, it expected growth rates of 6% and 2.1%, respectively. Consumer price inflation is likely to average 7.4% this year, up from the previous forecast of 4%, the office said.

Manufacturers were among those hoping for more aid in Sunak’s midyear update on public finances.

Make UK, a trade body, said the sector was facing cost increases that are pushing many toward a “tipping point.” The lack of support on energy costs was hard to fathom, group chief executive Stephen Phipson said.

“It has been two years to the day since lockdown began, and there is very little in today’s statement to support a sector that kept working throughout the pandemic,'' Phipson said. “The promise of jam tomorrow with consultations through the summer and action in the autumn will also be of little comfort for many who would have liked to have seen action and support immediately.”

Shevaun Haviland, director-general of the British Chambers of Commerce, said the government did not fundamentally address cost pressures. Since the economic outlook is worsening, many firms will be forced to raise prices, further fueling the crisis.

“Today was a missed opportunity to rebuild and renew the economy and ensure business has the resilience to weather the uncertain and volatile times ahead,'' she said. “The cut in fuel duty, though very welcome, is just a drop in the ocean compared to the larger tsunami of surging costs that is bearing down on firms and households."

  • Associated Categories: Associated Press (AP), AP Business, AP Business - Consumer News, AP Business - Economy, AP Business - Personal Finance
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