Tories’ £46 billion unfunded tax plan could drive up cost of living, Labour analysis warns

Rishi Sunak’s ‘reckless’ unfunded plan to abolish national insurance would drive up inflation and the cost of living, Labour has warned.

At the Spring Budget, the Chancellor announced a £46 billion unfunded tax plan to abolish national insurance contributions.

Labour analysis using official Treasury documents warns that the additional borrowing needed to fulfill the Tories’ commitment to abolish national insurance contributions could increase inflation by as much as 0.8% - the equivalent of an extra £220 a year on the annual weekly shop or £1,100 higher by the end of the parliament.  

Labour is comparing the Chancellor's latest unfunded tax plan to the one that former Prime Minister Liz Truss handed down in her mini-budget which crashed the economy.

The warning comes ahead of the publication of official inflation data for February.

Darren Jones MP, Labour’s Shadow Chief Secretary to the Treasury, commenting on the new analysis, said:

"The Tories already unleashed an economic disaster in Liz Truss' mini budget, and families are still paying the price with higher bills and soaring mortgages.

"The Chancellor needs to come clean with the public on the inflationary impact of his plan and what taxes will rise or what services will be cut to fill his £46 billion fiscal blackhole.

"After 14 years, we need a new government that won't play fast and loose with the public finances. A Labour Government will always treat the public's money with the care it deserves and build a stronger economy the works for working people."

Ends.

Notes to editors:

• https://www.gov.uk/government/publications/further-detail-on-hmt-analysis-of-borrowing-and-interest-rates/annex-the-impact-of-borrowing-on-interest-rates#fn:13
  
  
• The Treasury have published estimates of the impact that a £25bn or 1% of GDP fiscal loosening would have on inflationA

• £46bn unfunded tax plan would constitute a 1.7% of GDP fiscal loosening, using 2024/25 GDP of £2786bn published by the OBR (table A.3: https://obr.uk/docs/dlm_uploads/E03057758_OBR_EFO-March-2024_Web-AccessibleFinal.pdf)

• Using the figures in the Treasury’s document, which say that a 1% of GDP loosening would raise inflation by between 0.15 percentage points and 0.5 percentage points, means that a £46bn unfunded tax plan could raise inflation by as much as 0.8 percentage points.

• ONS data says average weekly expenditure is £528.80 (https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/expenditure/bulletins/familyspendingintheuk/april2021tomarch2022#:~:text=1.-,Main%20points,(COVID%2D19)%20pandemic.)

• A 0.8 percentage point increase in costs would mean £4 more costs a week, or £220 extra a year.