UK to cut taxes on wages and fuel. Inflation will still leave many worse off

London(CNN Business) The UK government is cutting payroll taxes and duties on fuel in an attempt to take some of the sting out of the worst cost of living crisis in decades.

But it resisted calls to impose a new windfall tax on oil company profits to raise money to fund more relief for households, despite inflation soaring to a new 30-year high above 6%.

Finance minister Rishi Sunak said Wednesday that he would cut the duty on gas and diesel by 5 pence (7 cents) a liter for one year. The government will also raise the threshold for a payroll tax — a measure that amounts to a £330 ($435) annual tax cut for about 30 million people — and reduce the basic rate of income tax from April 2024.

"Cutting taxes means people have immediate help with the rising cost of living," Sunak said during a speech to parliament.

But Sunak did not announce a windfall tax on energy companies — a key demand from campaigners protesting the high cost of living. Last year, oil giants BP (BP) and Shell (RDSA) made a combined $32 billion in profit.

He also froze the planned increase in benefit payments next month, despite soaring inflation. And a previously announced hike in a payroll tax, as well as a four-year freeze to income tax thresholds, means that many households will still be worse off after Wednesday's announcements — despite help with fuel bills already unveiled in February.

"A median (middle) earner on £27,500 [$36,315] per year can expect to be about £360 [$475] worse off this year than they were last," the Institute for Fiscal studies said in a statement.

"What really stands out today is what was missing," said IFS director Paul Johnson. "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. Their benefits will rise by just 3.1% for the coming financial year. Their cost of living could well rise by 10%."

UK inflation hit 6.2% in February, rising at its fastest pace since March 1992, the Office for National Statistics said on Wednesday.

Price hikes were driven by soaring energy and fuel costs, squeezing Britons as wage increases fail to keep pace. Russia's invasion of Ukraine in February is making the situation worse, further pushing up energy and food prices, the Bank of England said last week.

February's figures show that natural gas prices were up by nearly a third and electricity by almost a fifth compared to last year. Average prices for petrol and diesel were the highest on record, the ONS said.

Inflation could get worse before it gets better.

The Bank of England predicts that inflation will reach 8% after April and could go even higher later in the year. Last week, the central bank hiked interest rates to their pre-pandemic level of 0.75% in an attempt to get price rises under control.

UK regulators will lift the energy price cap — the maximum amount suppliers can charge households per unit of energy — by a whopping 54% in April. The government is cutting local taxes to reduce the pain, but tens of millions of households will still be left with much larger heating bills. The cap could be lifted again in October if prices continue to rise.