UK’s Rishi Sunak cuts fuel duty to soften cost-of-living hit

Chancellor promises to take a penny off income tax by 2024 amid surging inflation

The UK's Chancellor of the Exchequer Rishi Sunak has cut fuel duty by 5p per litre and promised to take a penny off income tax by 2024 amid surging inflation and a forecast of low economic growth. But opposition parties said the measures did not go far enough as Britain's fiscal watchdog warned that living standards would suffer their biggest fall since records began in the mid-1950s.

“The public finances have emerged from the pandemic in better shape than expected. But Russia’s invasion of Ukraine will push inflation to a 40-year high of almost 9 per cent, and living standards are set for a historic fall over the next 12 months,” the Office for Budget Responsibility said.

“With inflation outpacing growth in nominal earnings and net taxes due to rise in April, real livings standards are set to fall by 2.2 per cent in 2022-23 – their largest financial year fall on record – and not recover their pre-pandemic level until 2024-25.”


The chancellor refused to bow to pressure from Conservative MPs to scrap or postpone next month’s 2.5 per cent increase in National Insurance Contributions (NIC), which will see employers and employees each pay an extra 1.25 per cent. But he increased the threshold by £3,000 (€3,602) so that from July people can earn £12,570 before having to start paying NICs or income tax.


The higher threshold will mean that 70 per cent of workers will pay less even after the NICs increase, the chancellor said. Mr Sunak promised to reduce the income tax burden further before the next election by cutting the basic rate from 20p in the pound to 19p.

“I have been able to do this because of our strong economy and the difficult but responsible decisions I have had to make to rebuild our finances following the pandemic. Cutting taxes means people have immediate help with the rising cost of living, businesses have better conditions to invest and grow tomorrow, and people keep more of what they earn for years to come,” he said.


Mr Sunak has given an extra £500 million to a Household Support Fund administered by local authorities to help vulnerable households with food, energy and water bills. The 5p cut in fuel duty was due to come into effect on Wednesday night for one year and the chancellor also announced a cut in VAT on the installation of energy-saving materials in homes from 5p to zero.

Northern Ireland will not immediately see VAT cut to zero on such installations, however, because Britain’s withdrawal agreement with the European Union means that the European Commission must agree to the cut.

“This policy highlights the deficiencies in the Northern Ireland protocol. We will not immediately be able to apply it to Northern Ireland, but we will be raising it with the commission as a matter of urgency, and I want to reassure Members from Northern Ireland that the Executive will receive a Barnett share of the value of the relief until it can be introduced UK-wide,” Mr Sunak said.

Denis Staunton

Denis Staunton

Denis Staunton is China Correspondent of The Irish Times