Rishi Sunak is under pressure to ease the cost-of-living crisis for millions of households facing a real-term cut in their income and inflation heading for a 30-year high when he makes his Spring Statement on Wednesday.

       The Bank of England is projecting inflation to rise to eight per cent this summer, meaning prices will outstrip wage growth. A typical household could see its income fall by four per cent – ￡1,000 – according to the Resolution Foundation.

       Tax rises or freezes for income, National Insurance or companies will net the Treasury billions in extra revenues as the Chancellor seeks to stabilise the public finances following the pandemic and reduce the national debt, according to the Institute for Fiscal Studies (IFS).

       Mr Sunak is resisting extra public spending, including on defence, and has ordered ministers to find ￡5.5 billion of efficiency savings. He will also want to bank as much of the ￡25 billion windfall from higher-than-expected growth and tax revenues for tax cuts before the next election.

       So what can he do to ease people’s cost of living?

       Fuel duty cut

       More than 50 Tory MPs have already demanded a cut, with 5p the minimum they expect to have an impact on hard-pressed motorists. There was, however, speculation on Tuesday that Mr Sunak could plump for a lower figure because of the difficulty of reversing it in future.

       Even 5p would be less than most other countries including Ireland (17p on petrol), the Netherlands (14p), France (13p) and Sweden (10p). With prices at a record high of ￡1.67p for a litre of petrol, up nearly 50p in a year, Labour has noted 5p would only save ￡2 on filling up a tank.

       Mr Sunak’s comments at the weekend, acknowledging it is “one of the biggest bills people face”, suggest he will cut the duty, a move backed by Labour. Fuel duty is levied at 58p a litre and has been frozen for 11 years.

       Supporters said it has the advantage of being a “fair” tax cut as the highest-income households will gain the most in cash terms because they are more likely to own cars and drive more, but those on lower incomes will benefit more as a proportion of their pay.

       Another option to remove the 20 per cent VAT on fuel is thought unlikely because of the difficulty of making such changes temporary.

       National Insurance rise: cut, defer or soften?

       The Chancellor has been urged by ministers and backbenchers to at least defer the 1.25 per cent NI rise from April, which will raise ￡13 billion in the first year to help reduce the huge post-pandemic NHS treatment backlog.

       Government sources have pushed back, saying that a year’s delay in the tax rise would bring it closer to an election and undermine the Chancellor and Boris Johnson’s joint pledge in January to go ahead with it after the Prime Minister was said to be “wobbling” at the height of “partygate”.

       A delay or cancellation would also focus help on higher-income households as more than half the gains would go to the richest fifth of households, according to the Resolution Foundation.

       The alternative being considered by the Treasury is to wipe out the National Insurance rise for lower-paid workers by raising the threshold at which they start to pay the tax. It is currently ￡9,600, rising to ￡9,900 in April.

       Increasing the threshold to ￡10,700 a year early would provide a tax cut of ￡100 to people in work with no permanent loss to the Treasury if it reverts to its previous path in future years. This would cost ￡2.5 billion this year and benefit anyone earning less than ￡20,000.

       However, the Centre for Policy Studies, a centre-Right think tank, has suggested going further so that Mr Sunak could say that no worker earning below the national wage would lose out.

       This could be achieved by raising the threshold to ￡11,284, protecting low and median workers, who earn equal to or less than ￡27,500, from incurring a real-terms tax rise of ￡182.21.

       “Doing so would only cost the Treasury a third of the receipts it expects to generate from the NI rise – approximately ￡4.7 billion of the ￡12 billion – and would limit the impact of the tax hike to the most affluent, as well as the businesses whose own NI contributions are also rising,” said the Centre for Policy Studies.

       The IFS said it would be practically easier to get money into the pockets of workers by raising income tax thresholds – which is another option – although the personal allowance has already been increased to ￡12,570, far ahead of the National Insurance baseline.

       Stuart Adam, a senior research economist at the IFS, said: “The other issue is that they apply to different people. National Insurance only applies to those earning whereas income tax applies to all with income. Increasing the income tax allowance helps pensioners in a way that raising National Insurance thresholds would not.”

       Benefits and discounts on energy bills

       Mr Sunak could increase pension and benefit payments to ease the pressure on poorer households. The Resolution Foundation has called for an additional five per cent this year, on top of the current 3.1 per cent, to help those on low incomes cope. They would gain on average ￡530 a year.

       The Chancellor has said that he wants to target help at these people, but is reluctant to do anything that “bakes in” higher payments for the long term.

       The alternative is to increase the financial support being provided to households to cope with rising energy bills, which includes a ￡200 “loan” and ￡150 council tax rebate. “He could make those bigger – take another ￡200 off energy bills or another ￡150 in council tax rebates,” said Mr Adam.

       Labour said that the current five per cent VAT on domestic energy should be scrapped. Mr Adam added: “The problem is that, first of all, it is quite hard to make things like that temporary. Second is that the Chancellor may worry about opening the door for new VAT breaks left, right and centre.”

       The Treasury is, however, said to be considering continuing the 12.5 per cent VAT discount for the hospitality industry, after warnings that it could contribute to a 10 per cent rise in the cost of eating out. The rate is due to return to 20 per cent in April.

       Pensions

       The state pension triple lock will be honoured until at least the next general election, which could see it rise by seven per cent next year.

       The triple lock ensures that the state pension rises each year in line with whichever is highest out of inflation as measured by the Consumer Prices Index, average earnings, or 2.5 per cent.

       Corporation tax

       Although the focus of the Spring Statement is on the cost-of-living crisis, Mr Sunak has already signalled he wants to reward companies that invest in new technology and equipment by offering them corporation tax exemptions or benefits. This would mean more generous deductions from tax for investment.

       The “super deduction” scheme, where companies can deduct 130 per cent of their investment from their taxable profits, is due to end next year. But insiders said they would “not be surprised” if Mr Sunak continued it at a 100 per cent rate.