Rishi Sunak is under increased pressure to drop his 1.25 percentage points increase of National Insurance next month in the wake of Russia’s invasion of Ukraine.
It is expected the war will lead to higher inflation than expected due to Europe’s large reliance on Russian gas and Ukrainian agricultural products, like wheat.
Annual growth in the Consumer Price Index (CPI) hit 5.4 per cent in January – a 30-year-high – with the Bank of England saying it will reach more than 7 per cent.
Senior Tory, and former cabinet minister, David Davis told the Observer that historically huge increases in oil and gas have led to stagflation – a concurrent increase in inflation and contraction in GDP – like after the 1970s oil crisis.
“The case for dropping this rise is even stronger after recent events,” he said.
“We know there are those in government who favour cancelling the rise, and [Ukraine] gives it a reason for changing its mind.”
Labour shadow chancellor Rachel Reeves said “our British businesses hold the key to our economic recovery – this is not the time to put yet another burden on them”.
The rise in National Insurance comes as households are facing a broader cost of living crisis due to rampant inflation.
Price rises have been particularly stark on UK energy bills, with the recent hike in the energy price cap increasing average annual payments by £693.
Sunak set out a £9bn scheme to decrease gas bills by at least £350 for every household, however £200 of this has to be paid back over the next five years.
The chancellor and Boris Johnson also jointly wrote a Sunday Times piece in January standing firm on their tax hike.
“We must go ahead with the health and care levy,” they said.
“It is progressive: the burden falls most on those who can most afford it.
“Every penny of that £39bn will go on crucial objectives – including 9 million more checks, scans and operations, and 50,000 more nurses, as well as boosting social care.”