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Families facing £1,300 bombshell from inflation and tax hikes

June 23, 2022 7:00 AM

The Liberal Democrats have slammed the Conservatives as not having "any sense or any soul" for inaction on the cost of living crisis as families face a near £1,300 bombshell from inflation and tax hikes.

Today's ONS data reveals that a typical household now spends £5,780 a year on food, drink and clothing - £425 more than a year ago. Meanwhile record petrol and diesel prices mean that a typical family re-filling its car once a month pays an additional £310 a year.

The hit to families from soaring food and fuel prices is being practically doubled by an additional £640 in extra National Insurance, Income Tax and VAT this year. The rise in costs means households are being left with a near £1,300 blackhole due to this Government's failure to act.

The Liberal Democrats have called on the Government to implement an emergency budget that would cut VAT from 20% to 17.15% and scrap the National Insurance tax hike which would save families a combined £660.

When the last emergency VAT cut was introduced in December 2008, inflation fell from 4.1% to 3.1% within one month. The ONS also found that the cut to VAT in the hospitality sector in 2020 led to a fall in consumer inflation.

The party is also calling for a rural fuel duty cut of 10p a litre, doubling the current Rural Fuel Duty Relief scheme and expanding it to more areas.

Commenting Christine Jardine MP, Liberal Democrat Treasury Spokesperson said:

"Rishi Sunak and the Conservatives are standing by while millions of people suffer from eye-watering levels of inflation. How do they think ordinary families are going to find this extra money?

"Drivers in rural communities are bearing the brunt of devastating fuel price hikes, but the Conservatives are failing to lift a finger to help.

"This Government has hiked taxes at every chance, refusing to slash them to help with the cost of living emergency. Even when we know slashing VAT is a sure-fire way to help families while keeping inflation under control.

"The Chancellor, his Prime Minister and his colleagues continue to fail the British people when they need support, if they had any sense or any soul they would implement an emergency budget to cut taxes."

Notes

Hit to typical household from rising essentials and tax in 2022-23

Taxes

Financial hit in 2022-23

Income tax and NI

£210

Extra VAT

£428

Sum

£638

Essentials

Financial hit in 2022-23

Food, drink and clothing (excl VAT)

£393

Petrol (excl VAT)

£256

Sum

£649

Combined hit:

£1,287

Analysis of ONS figures shows that for a household of two full-time employees, average annual expenditure on food and drink (excluding alcoholic drinks and tobacco) is now £4,031 a year, and on clothing and footwear £1,746. This takes total spending on these items to £5,777 a year, which is £425 higher than last year (May 2021 food and drink: £3,719; clothing: £1,634; total: £5,353).

Because we account for additional VAT separately, in the above table we have removed VAT from spending on clothing, and from 1/4 of food spending (the majority of food items are zero-rated).

The increase in household spending was calculated using official data from the ONS on annual household expenditure on food & drink and clothing & footwear for households in full-time employment (Table A17). 2020 figures were uprated by food and clothing inflation for April 2021 and subsequently by 1-month inflation for May 2021. They were then uprated using the latest food and clothing inflation figures (8.4% and 6.9% respectively - May 2022 - CPI table 28) to estimate the price increase compared to the same month last year (alcoholic beverages and tobacco inflation was excluded).

Additional fuel expenditure was calculated assuming that a family re-fills a 45L car once a month, using the latest fuel prices (June 22nd) from the RAC, compared with those from the same period last year (July 1st 2021). This produces an increase of £307 a year. Because we account for higher VAT separately, in the above table we have removed VAT from fuel spending.

According to House of Commons Library research commissioned by the Liberal democrats, a household with two full-time earners on median earnings will pay an extra £210 in income tax and national insurance in 2022-23. Liberal Democrat analysis also estimates that the typical household will pay an additional £428 in VAT this year. This takes the total direct and indirect tax bill for a family to £638 this year.

Calculation of estimated VAT rise for typical household amounting to £428:

· Total VAT receipts (outturn and forecast) from OBR's March 2022 Economic and fiscal outlook, Table 3.4 on page 95

· Average VAT for non-retired households for 2019-20 from ONS, Effects of taxes and benefits on household income, Table 3

2019-20

2020-21

2021-22

2022-23

VAT receipts

£134.7bn

£117.0bn

£138.7bn

£154.2bn

Year-on-year change

-13.2%

18.5%

11.2%

Avg total VAT paid per household

£3,715

£3,225

£3,823

£4,251

Change in avg VAT per household from 2021-22

+£428