UK’s Rishi Sunak vows tax cuts as he warns Russian sanctions not ‘cost free’

With one eye on election amid cost of living squeeze, chancellor is accused of offering 'jam tomorrow.'

UK’s Rishi Sunak vows tax cuts as he warns Russian sanctions not ‘cost free’

LONDON — U.K. Chancellor Rishi Sunak unveiled plans for a pre-election income tax cut as he warned Russia’s invasion of Ukraine would starkly hike the cost of living for British citizens.

Amid pressure from Conservative Party colleagues to reduce tax rates, the country’s top finance minister used his spring economic statement to promise a cut to the basic rate of income tax — just not yet.

The tax will be cut by 1 penny in the pound in 2024, when the next U.K. general election is due to be held. Sunak hailed the move as a “tax cut for workers, for pensioners, for savers.”

But he is also pushing ahead with a controversial national insurance rise at the same time. The government argues the lift in the separate tax is needed to pump more funding into a health and social care system hit hard by COVID-19. In one significant concession on the original plan, Sunak promised the threshold at which workers will begin to pay national insurance will rise by £3,000 in July.

Sunak’s statement came against a grim economic backdrop, as the international fallout from the war in Ukraine — as well as longer-running pressures on the U.K. economy — bite hard.

The chancellor warned Western moves to sanction Russia over its invasion of Ukraine were not “cost-free.”

“The war’s most significant impact domestically is on the cost of living,” Sunak said.

In a bid to address immediate concern about energy costs, he unveiled a 5-pence-per-liter cut to fuel duty. The measure will come into force at 6 p.m. on Wednesday evening.

He also vowed to would scrap value added tax — a consumption tax — on green home improvements such as solar panels, heat pumps and insulation. He promised to double a fund that provides grants for poorer households to pay for food and utilities, known as the Household Support Fund, to £1 billion.

“This statement puts billions back into the pockets of people across the U.K. and delivers the biggest net cut to personal taxes in over a quarter of a century,” Sunak said.

Yet elements of Sunak’s tax plan drew criticism amid deep fears in the U.K. about the rising cost of living. The Office for National Statistics announced Wednesday that consumer price inflation hit 6.2 percent in February, up from 5.5 percent in January, and a 30-year-high.

Paul Johnson, head of the Institute for Fiscal Studies think tank, said the changes to income tax and national insurance would drive a “further wedge” between the taxation of earned and unearned income, and warned the proposals would benefit pensioners and landlords at the expense of workers.

Responding in the House of Commons, Sunak’s opposite number Rachel Reeves said businesses were already facing unprecedented increases in their costs, dismissing the government’s “promise of jam tomorrow rather than the support that is needed now.”

The spring statement, a mini-budget, is one of the two statements the U.K. Treasury makes each year with publication of economic forecasts. The last statement was made in October.