Chancellor of the Exchequer Rishi Sunak leaves 11 Downing Street to announce the Treasury’s one-year spending review in the House of Commons in London, England, on November 25, 2020.
David Cliff/NurPhoto via Getty Images
LONDON — U.K. Finance Minister Rishi Sunak on Wednesday announced an immediate cut to fuel taxes in a bid to mitigate the country’s historic hit to living standards.
In his Spring Statement, Sunak announced that fuel duty will be reduced by 5 pence per liter for 12 months, a cut he told Parliament will be worth £5 billion ($6.6 billion), starting from 6 p.m. U.K. time on Wednesday. The government hopes the cut will reduce the cost of gasoline at the pumps amid a surge in global oil prices.
The level of fuel duty, a substantial contributor to British public finances, has been frozen at 57.95 pence per liter since 2011.
Sunak also revealed plans to double the government’s household support fund to £1 billion for those affected by higher energy costs.
The pressure had been on Sunak to address the spiraling cost of living crisis in the U.K., with households facing record rises in energy bills and inflation running at multi-decade highs and expected to worsen as the fallout from the Russia-Ukraine conflict intensifies.
U.K. inflation came in at 6.2% in February, new figures showed on Wednesday, its highest since March 1992 and well ahead of consensus expectations among economists.
The Bank of England expects inflation to reach 8% in the second quarter, and has cautioned that double-figure prints are not inconceivable before the end of the year if Russia’s assault on Ukraine and subsequent global supply shortages persist.
A planned 10% increase to National Insurance (a tax on earnings) kicks in for many workers in April, while at the same time the U.K.’s energy price cap soars 54% to accommodate higher costs of oil and gas, exacerbating the squeeze on household income as consumer prices continue to head north.
During the height of the coronavirus pandemic, Sunak launched a series multi-billion pound economic support packages, fueled by the country’s largest peacetime borrowing levels in history.
In interviews over the weekend and in his annual Mais lecture given last month, however, Sunak has indicated that ever-expanding fiscal accommodation is not a strategy he wishes to sustain.
