Although significant tax or spending changes are usually reserved for the Budget in the Autumn, the Ukraine crisis has accelerated rising costs and many commentators believe the Chancellor needs to take radical measures to ease the burden.
The Centre for Economics and Business Research (CEBR) said the world is in “many ways a different place than it was three weeks ago”, with a multitude of implications for the UK’s economic outlook.
Given the backdrop the organisation said the Chancellor should use the Spring Statement on Wednesday to protect household finances and reverse planned tax hikes including National Insurance increases that were based on assumptions “that have already proven false”.
Earlier this month, the CEBR estimated that the conflict will cost each British household £1,259 in 2022 in higher prices for energy, food and other essentials.
The latest inflation figure is also due out on Wednesday, and it will be in the spotlight amid concerns it could hit double figures in the months ahead.
Kevin Brown, savings specialist at Scottish Friendly, warned that a return to the stagflation era of the 1980s would be “crippling for families on lower incomes”.
Despite the challenges, the CEBR believes the Chancellor has some leeway to ease the burden thanks to strong wage growth and a robust post-Omicron bounceback at the start of the year.
Barret Kupelian, senior economist at PwC UK, estimates that Mr Sunak’s starting fiscal position is around £40 billion above original expectations. “The Spring Statement will therefore give the opportunity to reveal his cards on his choices whether to either relax the government’s fiscal stance temporarily or continue with the original plan,” he said.
“If he chooses the former, then he could opt to delay or tweak some of the planned tax rises announced previously or increase spending on vulnerable households and shore up spending on emerging areas of priority, including on defence. Alternatively, he may keep his cards close to his chest and save any potential giveaways for later on in this parliament’s term.”