Rishi Sunak has warned that the UK is facing “challenging and uncertain” times after official forecasters predicted the biggest fall in living standards on record.

Following his spring statement on Wednesday, the Chancellor insisted the Government was “on the side of hard-working families”.

However, Labour has said that he has done nothing to tackle the cost-of-living crisis that is facing households up and down the country.

In his Commons statement, Sunak announced a 5p cut in fuel duty and an increase in the threshold at which people pay national insurance contributions.

Appearing on an LBC radio phone-in on Wednesday evening, Sunak said 70% of people would be better off as a result – despite an impending increase in national insurance rates to pay for the NHS and social care.

“We have got some uncertain and challenging times ahead,” he said.

“This Government is on the side of hard-working British families and we will get through these next challenges together.”

Bournemouth Echo: (PA)(PA)

With the war in Ukraine forcing the Office for Budget Responsibility (OBR) to sharply downgrade its forecasts for growth, his deputy, Simon Clarke, denied the country was heading for “austerity 2.0”.

However, he warned public sector workers could not expect pay rises to keep up with rising inflation, which the OBR is predicting will hit a 40-year high before the end of the year.

“We are not freezing public sector pay,” Clarke told ITV’s Peston programme.

“There will be pay increases, but we are not in position where we can start paying out eight, 10, 12%. It would be wildly unrealistic to expect us to do that.”

He also gave a clear signal that ministers intend to issue more licenses for North Sea oil and gas production, as Europe seeks to move away from reliance on Russian supplies.

“We are determined to unlock more production in the North Sea,” he told BBC2’s Newsnight.

The OBR downgraded growth in gross domestic product – a measure of the size of the economy – from the 6% forecast for this year at the time of the Budget in October to 3.8%.

Inflation is forecast to hit 8.7% in the fourth quarter of 2022 and to average 7.4% over the year, with wages failing to keep pace with rising prices.

The OBR said higher prices – combined with rising taxes – will “weigh heavily on living standards in the coming 12 months”.

Despite a £6 billion cut in national insurance and a previously announced £9 billion package to help with energy bills, “real household disposable incomes per person will fall by 2.2% in 2022-23”, the biggest hit in a single year since records began in 1956-57.

The cost-of-living crisis, driven by fuel and energy prices which were rising even before Vladimir Putin’s invasion of Ukraine, will be exacerbated in April by the 1.25 percentage point hike in national insurance to fund the NHS and social care.

However, Sunak unveiled a plan to increase the threshold at which people start paying national insurance contributions (NICs) by £3,000 to £12,570 from July, benefitting around 30 million workers with a tax cut worth more than £330.

He promised further support in 2024 with a pledge to cut the basic rate of income tax from 20p in the pound to 19p – “a £5 billion tax cut for over 30 million people”.