How Rishi Sunak could save workers thousands in tax and solve the cost of living crisis

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Chancellor Rishi Sunak could save struggling families thousands of pounds by cutting taxes to stimulate the economy and dampen the effects of rising prices. 

The Government is looking at ways to cut the tax burden as families battle skyrocketing inflation, which has hit a 40-year high of 9pc.

Mr Sunak is reportedly drawing up plans to increase heating bill discounts for lower income households and make tax cuts in the autumn. This could be funded by a one-off windfall tax on oil and gas companies, which ministers are considering and could raise cash to offset the cost of living crisis.

Altogether, these policies could save households hundreds of pounds per year, although critics say windfall taxes are anti-business and will damage the overall economy. Telegraph Money looks at what options are on the table and what would they mean for your money.

Fast-track the 1p income tax cut

In his Spring Statement, Mr Sunak announced he would cut basic-rate income tax by 1p in the pound from 2024. As the cost of living crisis deepens, this tax could be fast-tracked.

Sarah Coles, of Hargreaves Lansdown, a fund shop, said for a person earning £40,000 per year, this tax cut would mean savings of £274.30. This would be equivalent to a 0.69pc pay rise.

Employees in this income bracket would see the biggest proportionate benefits because they have the largest share of their income concentrated in the basic-rate tax bracket.

A person earning £80,000 would pay £377 per year less in income tax, equivalent to a 0.47pc pay rise. A person earning £16,000 per year would save only £34.30, or 0.21pc of their income.

Scrap the National Insurance rise

In April, the Government introduced a 1.25 percentage point increase in National Insurance rates. Mr Sunak came under heavy pressure at the start of the year to reverse this but has so fare refused to do so.

However, if the Chancellor did scrap this unpopular tax rise, the benefits would be much bigger than the income tax cut.

Ms Coles calculated that a person earning £40,000 per year would save £352. Their National Insurance bill would fall from £3,724 to £3,372. This would be equivalent to a 0.9pc salary boost.

A person earning £80,000 would see an even larger boost of 1.1pc and would save £851 a year.

But the changes would do little to help lower income households. A person earning £16,000 per year would have annual savings of only £52.

These calculations assume the Government goes ahead with its plans to raise the National Insurance threshold in July as promised.

Increase the warm homes discount

Mr Sunak is expected to announce a package of measures in July to help households manage soaring energy bills.

As part of this, he is considering plans to make a one-off increase to the warm homes discount scheme, which is a discount on your energy bill. The discount, which is currently expected to be £150 this winter, could rise as high as £600.

This measure would bring a substantial boost to three million of the poorest households in England and Wales. The discount is available for low income households and those who receive the guarantee credit element of pension credit.

A person earning £16,000 could save an extra £450.

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