RISHI Sunak has had a startlingly difficult two years as Chancellor of the Exchequer.

Devising emergency packages to combat the worst impacts of the Covid pandemic, and the colossal economic shutdown it led to, was a considerable challenge. By general consent Mr Sunak was adjudged to have acquitted himself well.

But now he has to factor in the economic consequences of Russia’s brutal actions in Ukraine. The impact of the invasion on our cost of living cannot yet be calculated: who is to say that things will not get substantially worse in the months ahead? Should that happen, all current calculations will have to be revised.

First things first: Mr Sunak, in his Spring Statement this week, announced a 5p reduction in fuel duty and scrapped VAT on such energy-efficiency measures as insulation, solar panels and heat pumps.

He cut 1p from the basic rate of income tax and raised the threshold at which people pay National Insurance. Together, these two measures are expected to mean that the government will have some £10 billion less than it might have raised this year.

The fuel-duty reduction is welcome but, thanks to the scale of fuel price rises, will make only a minor difference to motorists. Anyone hoping that Mr Sunak would seize this opportunity to try to prise us away from our consumption of fossil fuels or even reduce our reliance on oil from Russia would have been disappointed.

While the decisions relating to the basic rate and the NI threshold are a step in the right direction, the Chancellor ought to have given due weight to the opposition that has been expressed in recent months and scrapped the manifesto-breaking rise in NI. Many MPs from his own party had urged him to do this, and with very good reason.

When looking at the state of the economy it is difficult to overlook the sombre analysis of the Office of Budget Responsibility, which says that living standards are expected to fall at the fastest annual rate since the mid-1950s.

Real household disposable incomes per person, the OBR adds, will fall by 2.2 per cent in 2022-23 as earnings from work struggle to keep pace with soaring inflation. The fall would be the biggest in a single financial year since current records began in 1956-57 and it would take until 2024-25 for inflation-adjusted living standards to return to their pre-pandemic level.

The Institute for Fiscal Studies (IFS), for its part, describes Mr Sunak as something of a fiscal illusionist, offering big new tax cuts while allowing taxes to rise. He can now expect, it says, to raise more in tax as a share of national income by 2025 than he expected last October. In fact, taxes are set to rise to their highest level as a fraction of national income since Clement Attlee was prime minister, back in 1945-1951.

Labour says that, by the end of this parliament, seven out of eight people will be paying more in taxes.

Mr Sunak seems to have underestimated the cost-of-living crisis that is giving rise to the biggest squeeze on incomes seen in a generation. Low-income families and pensioners will be particularly badly hit. A rise in Universal Credit would surely have not gone amiss: it would have been a sign that the Chancellor at least recognised their pain.

Official figures show that annual inflation, based on the consumer prices index, increased to 6.2 per cent in February – a 30-year high – as the cost of energy, food, clothing and other goods continued to soar, exerting further pressure on household budgets that are already under pressure.

That pressure is set to increase even further in the weeks ahead, with CPI inflation forecast by the Bank of England to rise to 8% eight per cent later this spring.

The hospitality industry, which has done so much to bounce back from the pandemic, now looks to the immediate future with trepidation, frustrated that the government is to press ahead with its intention to return the level of VAT applied to the industry to 20% per cent in April.

Energy costs will also, of course, pose a grave problem for businesses, large and small alike.

One way or another, we are all in for serious economic pain. Some of us will feel it far more acutely than others. Mr Sunak’s understandably cautious and, in some respects, rather political, Spring Statement (the 1p cut in the basic rate of income tax will come into effect in 2024 – election year) offered little in the way of comfort.

Mr Sunak has previously rejected the notion of a windfall tax on the huge profits being made by North Sea oil and gas companies, arguing that such a measure would deter vital investment. But is this not to time to consider the matter afresh?

Rachel Reeves, Labour’s shadow Chancellor, recalled this week the words of BP’s chief executive, to the effect that, his company currently resembles a cash machine; furthermore, she pointed out, the companies are using their profits not in investment but rather in stock buybacks and in increasing shareholders’ dividends and bosses’ bonuses. Labour would use a windfall tax to remove VAT from domestic gas and electricity bills and to expand the warm-homes discount for families and pensioners on low or modest incomes.

Chancellors, Ms Reeves pointed out, have to choose who to tax and who to shield. This Conservative government has taxed ordinary working people and shielded the oil and gas profits. Under Labour the companies would be asked to pay “a bit more”.

It’s useful in this context to look at Norway, where profits made from oil and gas extraction are subject to a 78% per cent windfall tax, in contrast to the UK, where oil and gas companies pay total corporation tax on their profits of 40 per cent. In Norway, the money is channelled into its sovereign wealth fund for the good of all.

Will Mr Sunak gave thought to a windfall tax in the autumn? He had, admittedly, limited room for manoeuvre this time around: should he be similarly constrained in the autumn, a one-off tax might be a radical option well worth considering.




A sliver of good news from Ukraine

CHEERING news being in decidedly short supply at the moment, it was reassuring, in the midst of so much despair and destruction being visited upon Ukraine, to read about the 52 children from orphanages in Dnipro arriving in Scotland.

We wish them well, and echo Nicola Sturgeon’s message to them: “I know you’d all rather be at home in Ukraine, but you’ll find love, care and support here for as long as you need it”.