In a series of big-ticket announcements unveiled in his Spring Statement, Mr Sunak shielded lower-income earners from the impact of the coming national insurance hike, reduced fuel duty from Wednesday evening and promised to cut income tax by 1p in 2024.
But he acknowledged the impact of inflation, which is at a 30-year high, and the global economic uncertainty caused by Vladimir Putin’s invasion of Ukraine.
The Office for Budget Responsibility (OBR) downgraded growth in gross domestic product – a measure of the size of the economy – from the 6 per cent forecast for this year at the time of the Budget in October to just 3.8 per cent.
Tom Jones Edinburgh: Princes Street Gardens concert stage times, support, setlist and how to get there
Edinburgh Airport: Taxi firms set to bid for control of rank as tender released
Newington Fire: Residents forced to find temporary accommodation and road closures still in place
Edinburgh strip club ban: Good Morning Britain interview sees former Edinburgh councillor Susan Dalgety clash with ex stripper
West Lothian crime: 'Horrendous' child rapist labelled 'utterly appalling' by judge
Next year’s growth forecast has been downgraded from 2.1 per cent to 1.8 per cent.
Inflation hit 6.2 per cent in February, up from 5.5 per cent in January, again reaching the highest level since March 1992, when it stood at 7.1 per cent.
Mr Sunak confirmed the reduction of fuel duty tax would be extended until March next year.
And he announced the threshold for paying National Insurance (NI) would increase by £3,000 from July as he said he was publishing a new “tax plan”, which would “help families with the cost of living”, “create the conditions for higher growth”, and “share the proceeds of growth fairly”.
The announcement was made in the wake of criticism of the planned NI increase by 1.25 percentage points for workers to raise extra funds for the NHS and social care.
The Chancellor also announced homeowners having home energy upgrades installed such as solar panels or heat insulation would not have to pay any VAT on the materials for the next five years, while the Household Support Fund was doubled to £1 billion.
Mr Sunak has said he will cut the basic rate of income tax from 20 pence in the pound to 19 before the end of the current Parliament, in 2024, in a move that will benefit English taxpayers.
Starting the Spring Statement, Mr Sunak said: “It is the biggest cut to all fuel duty rates ever.
"Whilst some have called for the cut to last until August, I have decided it will be in place until March next year … together with the freeze, it’s a tax cut this year for hard working families and businesses worth over £5 billion and it will take effect from 6pm tonight.”
Motorists had been hit by record pump prices since Russia’s invasion of Ukraine led to an increase in the cost of oil due to supply fears.
Mr Sunak said underlying debt is expected to fall steadily from 83.5 per cent of GDP in 2022/23 to 79.8 per cent in 2026/27.
He told MPs the UK’s actions against Vladimir Putin’s regime were “not cost-free for us at home” and present a “risk” to the recovery, adding: “The OBR has not accounted for the full impacts of the war in Ukraine and we should be prepared for the economy and public finances to worsen – potentially significantly. And the cost of borrowing is continuing to rise.
“In the next financial year, we’re forecast to spend £83bn on debt interest – the highest on record. And almost four times the amount we spent last year.”
Mr Sunak said that is why he will continue to “weigh carefully” calls for additional public spending.
The Chancellor told MPs he would publish a “tax plan” in which he wanted to reduce and reform taxes over the Parliament, and insisted the health and care levy will stay.
But he said: “Our current plan is to increase the NICs threshold this year by £300, I’m not going to do that – I’m going to increase it by the full £3,000, delivering our promise to fully equalise the NICs and income tax thresholds.
“And not incrementally over many years, but in one go, this year. From this July, people will be able to earn £12,570 a year without paying a single penny of income tax or National Insurance.
“That is a £6 billion tax cut for 30 million people across the UK. A tax cut for employees worth over £330 a year. The largest increase in a basic rate threshold ever. And the largest single personal tax cut in a decade.”