Rishi Sunak’s spring statement has done little to help families, hospitals, schools, the military and other public services squeezed by soaring inflation. The Chancellor of the Exchequer has instead focused his fiscal firepower on building a war fund for pre-election giveaways.

The decision revealed Sunak’s political choices. Unexpected price hikes brought huge additional tax revenue through stealth, and he chose to repay a little to the public in the most dramatic way possible.

Families, public services, graduates and companies are the losers, and the prime minister hopes he will reap the big political returns from tax cuts that won’t offset higher taxes. Sunak highlighted the dividend he wanted to achieve, saying: “For the first time in 16 years, the basic income tax rate will be lowered.”

The math behind the smoke and mirrors of the speech is relatively simple and has been linked to the impact of high inflation on household living standards and public finances.

Living standards will take a heavy hit as the Office for Budget Responsibility expects inflation to peak at around 9% by the end of the year – the highest level in more than 40 years – and household incomes have not kept pace.The fiscal watchdog forecasts that real household disposable income per capita will fall by 2.2% in fiscal 2022-23, estimating that [official] Records began in 1956-57″.

While this hit to income reduces the real growth of the economy, higher inflation raises the value of all goods and services, resulting in a lot of extra taxation.

The OBR has calculated that the extra tax revenue due to rising inflation provides the chancellor with a windfall of around £35bn a year, only part of which must be used to pay down debt costs and higher pensions and benefits.

Aside from a bad year in 2022-23 when debt interest costs on government debt linked to inflation have risen sharply, the OBR estimates that Sunak’s annual benefit from higher tax revenue will be at least more than £20bn he was forced to spend. Debt service and benefit enhancement.

All that’s left is choice. In the first year, he had a windfall of £50bn, which was already in the bank. Over the next few years, he has decided to return the net billions of his £20bn-a-year windfall to the tax-paying public.

The giveaway peaked in 2024-25, the year of the next scheduled general election, but still netted just £3.6bn.

Sunak sounds like the giveaway is a lot bigger than that, but then again, the smoke and mirrors are at work.

He said a 5p cut in fuel duty on a litre of petrol and diesel would cost more than £5bn this year, but documents showed it would cost just £2.4bn. The difference is because the chancellor calculates the nominal world savings of cutting tariffs from nominal levels as if it were raised on Wednesday based on inflation and then cut by more than 10p.

The increase in the National Insurance payment threshold, which costs £6bn a year, exceeds the additional tax added by freezing the income tax threshold for four years in a period of much higher than expected inflation.

The £6bn cost of cutting a penny a year from the basic income tax rate exceeds the extra costs graduates have to pay to pay off their student loans while they are working.

Public service and public sector workers are not getting any compensation to make up for higher inflation. Service will only get worse because schools, hospitals, police all have to pay more for everything, especially energy, but don’t get more money to fund it.

This is a spring statement on secret tax increases, secret real cuts in public spending, and all-important public tax cuts. Or, as Torsten Bell, CEO of the Resolution Foundation think tank, summed it up on Twitter: “This package only makes sense if your only test of policy options is that you can show you’re a tax cut. [and] You have announced an increase in National Insurance. “