Rishi Sunak has slashed fuel duty and raised the national insurance threshold in a bid to help families cope with the fastest rise in living costs in three decades.
But the Chancellor's plan, which will see fuel prices at the pumps fall by 5p a litre from tonight, was roundly criticised by economic analysts and opposition MPs for not going far enough.
On a day when the annual inflation rate rose to 6.2%, Mr Sunak announced that the threshold at which workers start paying national insurance will increase by £3,000 a year and announced a future 1p reduction in income tax to offset the impact of across-the-board price increases.
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Despite the measures, independent Office for Budget Responsibility (OBR) warned that households would still see a dramatic fall in their living standards this year.
Outlining his mini-Budget, Mr Sunak said: "This statement puts billions back into the pockets of people across the UK and delivers the biggest net cut to personal taxes in over a quarter of a century.
“Like our actions against Russia, I have been able to do this because of our strong economy and the difficult but responsible decisions I have had to make to rebuild our finances following the pandemic.
“Cutting taxes means people have immediate help with the rising cost of living, businesses have better conditions to invest and grow tomorrow, and people keep more of what they earn for years to come.”
But Labour said Mr Sunak had "failed to appreciate the scale of the challenge we face".
Shadow Chancellor Rachel Reeves said: "Inflation at its highest level for 30 years – and rising. Energy prices at record highs. People are worried sick.
"For all his words, it is clear the Chancellor doesn’t get the scale of the challenge.
"He talks about providing security for working families. But his choices are making the cost of living crisis worse - not better."
The Institute for Fiscal Studies agreed, saying the Chancellor had failed to help the “very poorest”.
IFS director Paul Johnson said: "In the face of what the OBR calls the biggest hit to household finances since comparable records began in 1956-57 he has done nothing more for those dependent on benefits, the very poorest, besides a small amount of extra cash for local authorities to dispense at their discretion,” Mr Johnson said.
“Their benefits will rise by just 3.1% for the coming financial year. Their cost of living could well rise by 10%.”
Blaydon MP Liz Twist said: "Today, the Chancellor had an opportunity to help people across the country through this cost of living crisis, instead he has announced virtually nothing to help those on the lowest incomes through this difficult period as energy bills soar."
Although the nation’s balance sheet has recovered faster from the pandemic than the OBR had expected, Mr Sunak told MPs “we should be prepared for the economy and public finances to worsen – potentially significantly” as a result of the war.
Warning against increased borrowing, Mr Sunak pointed out that a record £83 billion on debt interest alone was forecast to be spent in the next financial year.
Mr Sunak insisted the Treasury will continue to meet all its fiscal rules, with the OBR expecting underlying debt to fall steadily from 83.5% of GDP in 2022-23 to 79.8% in 2026-27.
