When Rishi Sunak stands up at the dispatch box at 12.30pm on Wednesday, he will not just be delivering his spring statement on the state of the economy.
With inflation tipped to reach 10 per cent, interest rates going up, a major tax rise in the offing and a global energy crisis forcing up gas bills and prices at the pumps, the chancellor is facing the biggest challenge of his time in Number 11.
For a man who sees himself as a prime minister-in-waiting, Sunak knows that the future of the government he hopes to lead may well depend on the decisions he takes now to address the cost of living crisis.
Here, HuffPost UK looks at his options and speaks to those piling pressure on him to act.
Taxing times
Speaking at the Tory spring conference in Blackpool yesterday, Sunak could not have been clearer: “I did not get into this to put up people’s taxes – I’m a Conservative, chancellor, it’s the last thing I wanted to do.”
It’s strange, then, that according to the Institute for Fiscal Studies, Sunak has announced tax rises worth 2 per cent of the UK’s gross domestic product in the last two years – as much Gordon Brown did in 10.
The most significant of those is the impending 1.25 percentage point rise in national insurance payments, which are due to kick in next month.
Sunak was at pains to stress in Blackpool that the only direction taxes will be going in from now on is down. “That is done, we’ve made the difficult decisions,” he said. “My priority going forward it to cut taxes.”
What might he do on Wednesday? The chances of him abandoning the NI rise – which will raise billions to clear the NHS backlog caused by the pandemic and eventually pay for reforms to social care – are zero, although he could be tempted to postpone it until next year as a way of alleviating some of the financial pain households are set to endure. This would delight many of his own MPs, although others say this would simply be storing up more problems for the future.
Pressure at the pumps
Anyone who drives a car will already have seen the direct impact on their wallets of the international energy crisis.
Global oil prices were already soaring before Russia’s invasion of Ukraine, which has led to the price of a litre pushing £2 for the first time.
While Sunak, and successive chancellors before him, have frozen fuel duty for more than a decade, the pressure is now building for him to go further by cutting it on Wednesday.
In a sign of the growing discontent on the Tory benches, more than 50 MPs signed a letter, published in The Sun, demanding a fuel duty cut. They included the likes of Iain Duncan Smith and David Davis, Conservative grandees who tend to choose their battles wisely.
One former minister told HuffPost UK that Sunak’s response will be the acid test of his leadership ambitions.
“Boris is quite keen on a fuel duty cut – he gets the importance of this much more than the Treasury does,” they said.
“The Treasury thinks the public won’t blame us for fuel prices going up, and will instead just put it down to the war in Ukraine. But that’s totally wrong.
“I don’t think Rishi has got that same instinct because he’s so rich. Guys like him spend £100 on a bottle of wine without thinking twice – they live in another world from the rest of us.”
What might he do on Wednesday? If he is going to pull a rabbit out of the hat, then a cut in fuel duty is most likely to be it. Although it would deprive him of much-needed revenue, the Treasury is already seeing its VAT receipts from petrol and diesel ticking over nicely, leaving him with another cash to cover it. It would also do him no harm at all Tory MPs – the very people who will have a major say in who succeeds Boris Johnson in Number 10.
The Boris factor
Not that the PM is planning to go anywhere any time soon. The partygate crisis, which led to a flurry of letters of no confidence in him, seems like a long time ago, and Johnson has won praise for his handling so far of the Ukraine crisis.
A source close to the prime minister made it clear to HuffPost UK that while he will not be holding the pen on the spring statement, he has made it very clear to Sunak that softening the blows raining down on household budgets must be uppermost in his mind.
“Boris never ceases to remind his entire cabinet that we need to be aware of the many pressures on household budgets and the need for us to find long-term solutions,” the source said.
“He’s not going to second guess the chancellor on the precise nature of what’s in the spring statement, but he is prescriptive enough in terms of what he wants the government to be doing to help people with the cost of living.
“It’s fair to say the chancellor would not announce any significant changes to policy without the explicit consent of the prime minister, who is after all the first lord of the Treasury.”
What are Labour saying?
Unsurprisingly, the opposition are far from impressed with the government’s handling of the cost of living crisis so far, and are zeroing in on the “unfair” national insurance rise.
“People are worried about their energy bills,” said a Labour spokesperson. “The Conservatives should halt their national insurance hike in April – and they must look again at Labour’s proposal for a one-off windfall tax on oil and gas producers to cut household energy bills by up to £600.” Spoiler alert: Rishi Sunak will not do this.
Any other business?
While all eyes will be on what practical measures Sunak announces to help hard-pressed voters, the spring statement will also see an update on the economic forecasts provided by the Office for Budge Responsibility on GDP growth, the national debt and the rate of inflation.
And while rising prices in the shops is undoubtedly bad news for ordinary Brits, the IFS say it could land the chancellor with an extra £12.5bn in tax receipts.
That’s because last March, Sunak announced a four-year freeze from next month on the thresholds at which income tax is paid, rather than letting them rise with inflation as normal. The IFS say this means the exchequer will be raking in £20.5bn a year from 2025-26, rather than the £8bn previously expected, because inflation is rising so much.
“It’s a far bigger tax rise than the government was intending at the time,” said Stuart Adam, senior research economist at the IFS. “These are really quite big numbers.”
Will Sunak use this unexpected windfall to spray the cash around on Wednesday? We don’t have to wait too much longer to find out.