Tax burden reaches highest level in 70 years as families face record living standards Business

Official forecasters expect inflation to peak at nearly 9% in October when energy bills soar again, marking the highest rate of price increases in around 40 years.

Inflation will average 7.4% this year, official forecasters said, nearly double the 4% average and 4.4% peak it predicted in the October budget.

Earnings, on the other hand, are expected to rise 5.3%, an improvement from the October forecast of less than 4% but still well below prices.

Changes to taxes and benefits will lower disposable income by 2.2%, adding to the pain for households.

Mr Sunak insisted he was helping with the cost of living with the £9billion package of council tax refunds and loans on energy bills, as well as a move to limit the impact of next month’s National Insurance raid by raising the threshold at which workers pay tax. .

From July, employees will only pay tax on earnings over £12,570 a year, limiting the effect of the Chancellor’s 1.25 percentage point tax hike on those with higher income.

He kept the promise of future tax cuts to partially reverse the impact.

The chancellor has said he will take a penny off the basic rate of income tax, from 20% to 19%, by the end of this legislature.

Mr Sunak is also temporarily cutting fuel tax by 5p in recognition that prices have reached all-time highs of over 165p a liter with diesel close to 180p.

The OBR said the measures ‘offset half of the hit to household finances from higher energy and fuel bills and a third of the overall decline in living standards that households would otherwise have suffered. confronted”.

Extreme fuel prices are partly a consequence of Russia’s invasion of Ukraine, which wreaked havoc on commodity markets, including oil and gas.

This compounds the already severe spike in inflation which, in turn, undermines economic recovery by straining household purchasing power.

The OBR cut its growth forecast, predicting that GDP will expand 3.8% this year, down from its previous forecast of a strong 6% expansion.

Growth will slow further to 1.8% next year, rebounding to around 2% in subsequent years.