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

Chancellor Rishi Sunak could save families in need thousands of pounds by cutting taxes to boost the economy and dampen the impact of rising prices.

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

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

Collectively, these measures could save households hundreds of pounds a year, although critics say unexpected taxes are anti-business and hurt the broader economy. Telegraph Money examines what options are on the table and what they would mean for your money.

Accelerate the 1p income tax cut

In his spring statement, Mr Sunak announced he would cut the basic income tax by 1p per pound from 2024. As the cost of living crisis deepens, this tax could be accelerated.

Sarah Coles of Hargreaves Lansdown, a mutual fund company, said for a person earning £40,000 a year this tax cut would mean savings of £274.30. This would correspond to a salary increase of 0.69%.

Employees in this income bracket would experience the greatest proportionate benefit because they have concentrated the largest portion of their income in the base tax bracket.

A person earning £80,000 would pay £377 less a year in income tax, a pay increase of 0.47 per cent. A person earning £16,000 a year would save just £34.30, or 0.21 per cent of their income.

Scrap the rise in Social Security

In April, the government introduced a 1.25 percentage point increase in social security rates. Mr Sunak was under intense pressure to reverse this earlier in the year but has so far refused to do so.

However, if the chancellor were to scrap this unpopular tax hike, the benefits would be far greater than the income tax cut.

Ms Coles has calculated that a person earning £40,000 a year would save £352. Your social security bill would fall from £3,724 to £3,372. This would correspond to a salary increase of 0.9%.

A person earning £80,000 would see an even bigger increase of 1.1 per cent and save £851 a year.

But the changes would do little to help low-income households. A person earning £16,000 a year would have annual savings of just £52.

These calculations assume that the government will go ahead with plans to raise the social security threshold in July as promised.

Increase the warm house discount

Mr Sunak is expected to announce a package of measures in July to help households deal with rising energy bills.

As part of this, he is considering plans to do a one-time increase in the warm house rebate program, which is a discount on your energy bill. The discount, which is currently expected to be £150 this winter, could go as high as £600.

This measure would give three million of the poorest households in England and Wales a significant boost. The reduction applies to low-income households and those receiving the guarantee credit element of the annuity loan.

A person earning £16,000 could save an additional £450. How Rishi Sunak could save workers thousands in tax and solve the cost of living crisis

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