Sunak will deliver a spring statement as important as most budgets

As he delivers a spring statement every bit as momentous as most budgets, Rishi Sunak has no less than four simultaneous crises to address: the energy crisis, the cost-of-living crisis, the social care crisis and the climate crisis – the latter understandably crowded out by the agonies of Ukraine, but still very much existentially there.

He also has a crisis in the public finances that has become so large that it has now transcended that term and become a simple fact of economic life: the huge national debt accepted as the price of national survival after the banking crisis and the Covid pandemic, much as it was during and after the Second World War. It is now of such a scale that there is nothing that can much be done about it in any single year or even parliament – reducing it will be the difficult work of decades.

The easiest way to dissolve the debt is to allow inflation to eat it away; or rather it was before the Bank of England was given operational independence and the obligation to hike interest rates to squeeze inflation out of the system – a painful process at the best of times. Such is the structure and nature of public debt that much of it is immune to inflation (being index linked to prices) and is immediately susceptible to increases in bank rate.

Tough choices about taxation and spending cannot be avoided by this chancellor; though the prime minister is thought to be relaxed about running up what he no doubt considers to be little more than a large bar tab. The choices are indeed tough, but certain principles should guide the choices the chancellor makes.

First, there should be no let up on net zero – and the commitments made at Cop26, which the UK hosted only a few months ago. That means that increases in fuel duty should stay, and the help given to households to help with the intolerable increase in gas bills has to be targeted on those most in need. There is some sign the chancellor understands it, with the way he has chosen to reduce council tax bills in lower-rated properties, but that is a very crude measure – and in any case will be reversed.

Much the same goes for his compulsory loan or “repayable discount” of £200 on gas bills – pain merely postponed for the poorest. As for duty on petrol and diesel: of course poor and lower-income households and small businesses who rely on their car or van are being punished by the rise in fuel prices – but it is the bigger cars with bigger engines run by those with bigger wallets who will enjoy any cut in duty the most. They would also benefit most from cutting VAT on domestic energy bills (though a cut would be better than doing nothing).

The combination of Brexit, the pandemic and war are inflicting a triple whammy on household incomes, and, frankly, an unavoidable one. The challenge for any government is to make sure the burden of adjustment to new economic realities falls on those most able to bear it. Larger, richer companies and households are the ones who have the greater ability to draw on savings and adjust their spending priorities and indeed invest in energy-saving and cost-saving measures (such as buying an electric vehicle or switching to a heat pump).

Those who were, to revive an old phrase, just about managing are now surely not managing at all. The working poor and the unemployed are the most in need of urgent assistance.

So the rumour that the chancellor will raise the threshold for paying national insurance contributions (NIC) to the existing one for income tax is both fair and rational. In the circumstances, where inflation has yielded a bonus because of this refusal to raise personal allowances, Mr Sunak might also take the opportunity to phase in or even postpone the increase in employee and employer NIC rates – or even, bigger still, transfer the burden to income tax, so that those with investment and rental incomes also pay their share to improve social care.

There is no fundamental case for reducing any carbon tax such as VAT in fuel or petrol and diesel duty; but reductions in tax and increases in benefits for those in poverty or edging into it among the working poor would be a much more effective way to soften the immediate financial impact of what may well be a permanent shift in the global cost of hydrocarbons and foodstuffs.

To keep up to speed with all the latest opinions and comment sign up to our free weekly Voices Dispatches newsletter by clicking here

A one-off windfall tax on the energy giants also has its attractions – but, as the name implies, it is not a permanent solution; a bigger notion might be to encourage these energy experts to use their supernormal returns on investing in sustainable cheap green energy, so that we might actually make “green subsidies” a thing of the past.

Every chancellor has to make difficult decisions, but no chancellor is entirely without options, even in the tightest of fiscal corners. The principle that the wealthiest should bear the greatest burden, and that the future of the planet comes first should infuse every budget announcement. Sustainable energy supplies would solve other crises.

In fact, had the west – especially Europe – managed its energy policy better over the past few decades and moved to clean, green economical energy, then we would not now be facing such an energy crisis, the poor would not be faced with ruin, and we’d be in much better shape to boost green growth to pay for long term care at home and to fight an economic war on Vladimir Putin.

But it is never too late to learn lessons. We shall see if Mr Sunak is as fast a learner as his image-makers suggest.