The UK currently has the largest tax burden since the 1960s, with various rates and reliefs frozen until 2026.
Inflation hit a new 30-year high of 6.2 per cent in the 12 months to February, putting further pressure on people's household finances.
This marked an increase on the 5.5 per cent jump in January, and according to the Office for National Statistics, was driven by the increasing cost of energy and transport as well as rises in the price of games, toys, clothing and footwear.
What's more, inflation is expected to accelerate in April when the energy price cap is lifted.
Source: ONS
The OBR, the independent forecasting agency of the government, has revised down its economic forecast for this year to 3.8 per cent, down from 6.5 per cent expected last October, but said it was difficult to forecast the full impact of the Ukraine conflict on the economy.
There is also no anticipation that the level of GDP growth will bounce back in 2023, as growth is expected to be almost half the rate of this year, at 1.8 per cent.
The eye-catching part of the statement from the chancellor from an economic point of view was his expectation that inflation will average 7.4 per cent this year, versus the 4 per cent he had predicted last October.
That figure can be seen in the context of the inflation print for February coming in at 6.2 per cent, itself a 30-year high, meaning that in at least several of the months ahead, inflation will be higher than that.
Sunak had to make a judgement call, said Boris Johnson ahead of the statement. “Will he do more to protect households from the effects of energy prices which have risen even further in the last two weeks?
"If he doesn’t, then many on moderate incomes will face the biggest hit to their living standards since at least the financial crisis. If he does, then there will be another big hit to the public finances."
The IFS has estimated consumers will face an additional £43bn in domestic energy costs, far higher than the £18bn initially thought. This comes on top of the increase in national insurance contribution rates and the frozen income tax thresholds and other tax threshold freezes.
National insurance threshold hike
In response to the growing cost of living crisis the chancellor has raised the threshold at which national insurance becomes payable to protect more lower-income households from the tax hike.
Advisers and several MPs, including Conservatives, had called for the policy to be delayed or scrapped altogether but the government has argued it would be irresponsible to leave a £12bn funding gap in the NHS budget, and that the progressive structure of the NI rise meant 50 per cent of the total would fall on the richest 15 per cent of earners.
