Ministers are scrambling to find a way to defuse a growing cost-of-living “catastrophe” today with soaring energy and food bills and rising taxes.
Experts have warned the squeeze could be even worse than the credit crunch 14 years ago, thanks to a toxic combination of price spikes, looming national insurance hikes and more than a million people resulted in the higher tax rate.
Tory MPs are pressing the panic button over the prospect of a tantalizing £ 12bn hike from NI taking effect in April, the backlash sparking a tense standoff between Jacob Rees-Mogg and Rishi Sunak in Cabinet this week.
The Chancellor is defying calls to drop the 1.25 percentage point hike, which is intended to fund the NHS catching up after Covid and social protection reforms.
Meanwhile, frantic discussions continue between the government and the energy industry on how to ease the pain of soaring gas costs for families. Households could see their bills increase by 50% in the spring, when the level of the cap should be adjusted according to wholesale prices.
And new figures suggest an additional 1.2 million people will be subject to the 40 pence tax rate over the next four years, after the threshold is frozen as part of Mr Sunak’s desperate efforts to balance the books after the pandemic.
In a series of talks this morning, Business Secretary Paul Scully insisted the government was looking for ways to ease the pressure.
But he was also left to wriggle on Sky News as he struggled to say how much a pint of milk costs – bragging that he had bought it in “big boxes” and at bigger stores. .
Boris Johnson (right) and Rishi Sunak (left) scramble to find a way to ease the cost of living crisis
Backbenchers have warned the Chancellor that the 1.25% increase in national insurance that goes into effect in April will increase pressure on family finances
In a series of talks this morning, Business Secretary Paul Scully insisted the government was looking for ways to ease the pressure
Households are hit by rising inflation and heating bills, and the energy price cap – which sets the maximum price for 15 million customers on standard variable tariffs – is expected to be raised in April.
Economic experts added last night to warnings about the pressures facing families grappling with the soaring cost of living.
Paul Johnson, director of the Institute for Fiscal Studies, told the Telegraph that people were facing pressure this year that “could well be worse than the financial crisis.”
Torsten Bell of the Resolution Foundation’s think tank added, “April in particular is going to be a cost-of-living disaster, and the year as a whole will be defined by the squeeze.”
Mr Rees-Mogg urged Boris Johnson at a Cabinet meeting on Wednesday to reverse the NI hike – indicating opportunities for savings elsewhere, including in the civil service.
Mr Sunak is believed to have rejected the idea of rethinking the tax during the meeting – stressing that the money had to be found somewhere.
Downing Street insisted there was “no plan” to remove or delay the increase despite a growing backlash from the Tories.
Labor and some Tory MPs are calling for a reduction in VAT on energy bills, but the PM played down the prospect, speculating that aid would be more likely to target low-income households.
Mr Johnson is expected to try to take personal responsibility for the crisis next week by holding meetings with industry, after companies apparently demanded huge support from taxpayers in talks with Business Secretary Kwasi Kwarteng.
Mr Sunak stood by the NI trek yesterday, saying, “It’s always easy to dodge tough decisions, but I don’t think it’s the responsible thing to do.”
But Craig Mackinlay, of the Net Zero Scrutiny group of Conservative MPs, said it was “not too late” for the Chancellor to change his mind.
He added: “With the cost of living crisis even more acute today due to a sharp increase in energy bills, increasing the pressure on households with an increase in national insurance will only do so. add to family and inflationary pressures. “
Conservative MP Andrew Bridgen said the Chancellor would come under “increasing pressure” to remove the NIC hike. He suggested that the Tories could suffer in the local election in May if the government does not act.
Yesterday, former minister John Redwood told MailOnline: “It would be very surprising if Cabinet members did not discuss this. This is what the backseat and the country are discussing.
“Cabinet should change its mind on this matter. They led the manifesto which ruled out an increase in national insurance.
Sir John singled out Mr Sunak, saying he was obsessed with the unreliable forecasts from officials.
Last month, Brexit Minister Lord Frost resigned from Cabinet, citing high taxes as one of his main concerns.
Analysis from the House of Commons library suggests that the Treasury’s decision to freeze the personal tax abatement and the higher-rate tax cut-off until 2026 will push 1.2 million working income into the d ‘imposition of 40p.
Freezing the thresholds will also mean that an additional 1.5 million low-wage people will be forced to pay income taxes.
Regional figures requested from the Commons Library by the Lib Dems show that London and the South East are expected to be hardest hit by the stealth tax, with an average income of £ 500 per household.
Paul Johnson, director of the Institute for Fiscal Studies, told the Telegraph people were facing a cut this year that “could well be worse than the financial crisis”
Commons leader Jacob Rees-Mogg called for the NI hike to be dropped at a Cabinet meeting this week
In all regions, household disposable income is estimated to be 1% lower in 2025/2026 than it would be had there not been a freeze on income tax thresholds.
This equates to £ 430 per household.
Treasury Lib Dem spokeswoman Christine Jardine said: “People are worried about the cost of living rising and paying their bills this winter.
“Now they face years of tax increases under a Conservative government that takes them for granted.”
Labor, meanwhile, accused the Tories of trapping the country in a “cycle of high taxation and low growth”.
Shadow Chief Treasury Secretary Pat McFadden said: “The Conservatives’ national insurance hike and other tax hikes leave workers with the heaviest tax burden in 70 years.”
“They’re trapping us in a cycle of high taxation and low growth that we need to get out of. Ministers could ease the burden now by reducing VAT on household energy bills.
The Federation of Small Businesses also urged the Chancellor to remove the tax hike. Mike Cherry, its national president, said: “Companies that pay thousands of dollars extra in energy costs shouldn’t have to hand over more to the tax authorities – just to keep employing their staff.”
Baroness Altmann, former Pensions Minister, said the NIC hike was a “separate injustice” to the energy hike, but urged the government to reverse the planned increase anyway.
Adam Scorer, chief executive of National Energy Action, an energy poverty charity, urged the government to first expand provisions like the Warm Home Discount Scheme and the Winter Fuel Payment – which reduce fuel bills. people’s energy.