Forget post-election tax cuts, we’re stuck in a lost decade, says IFS
Britain is in the grip of a “lost decade” of living standards with ongoing financial “pain” for millions of households, leading economists warned on Thursday.
The Institute for Fiscal Studies also stressed that the country is caught in a “trap” of huge debt, high interest payments and sluggish growth, meaning “there is no money left for additional spending or tax cuts after the election.”
The bleak forecasts contrasted sharply with the upbeat budget presented yesterday by Jeremy Hunt, who noted a slightly more positive near-term economic outlook for the country compared to last autumn.
Real disposable household income per person, a measure of real living standards, is expected to fall by a total of 5.7 percent over the two fiscal years 2022-23 and 2023-24, according to the Office for Household Responsibility.
IFS Director Paul Johnson said: “The OBR may be relatively optimistic over the medium term, but still expects this to be the worst two years on record for household incomes. His projections suggest that real disposable household incomes in 2027 will be no higher than in 2019 and only marginally higher than in 2017 – a lost decade for living standards.”
In its budget analysis, the IFS also notes that:
- It has warned that up to 600,000 people could lose around £350 a month on universal credit disability pay, with 60 per cent of this group having mental health problems. Crucial to whether this would happen is how the reforms are implemented.
- Put the cost of the government’s proposed increase in the workforce at £7 billion a year, or a staggering £70,000 for the estimated 110,000 increase in jobs.
- Stressed that this surge in jobs was “dwarfed” by the estimated annual net immigration of 245,000, although some Brexit supporters claimed leaving the EU would reduce inflows to the UK.
- Abolishing the lifetime limit on pension supplements, which was just over £1million and which is expected to mean 15,000 more workers, including NHS advisers, would “raise £100,000 a job”.
- Praised the budget for “some elements of a sensible strategy to support growth”.
- Described the multi-billion dollar expansion of childcare, including for young children, as a “major shift in both the scope of the welfare state and our expectations of what it should provide.”
- Highlighted “stealth taxes”, including freezing the thresholds above which people start paying the basic income tax rate of 20p and the higher rate of 40p until 2028, at £12,570 and £50,270 retrospectively. It is estimated that for many base taxpayers this will mean around £500 in extra tax per year as inflation and wages rise, and around £1,000 for many higher tax rate payers.
- Stressed the blow of Brexit to the UK, with the country’s long-term output set to be 4% lower.
The government borrowed heavily to deal with the Covid pandemic, then doubled in response to the energy crisis sparked by Vladimir Putin’s invasion of Ukraine.
As the government’s debt mountain climbs to £2.9 trillion by 2027-28, Mr Johnson stressed that Mr Hunt was “caught in a debt trap”.
He explained: “He’s got this horrible combination of taxes going up to all-time highs, tight spending plans, and yet the debt isn’t going down.
“The reason is that it has sluggish growth, high interest payments on debt and high levels of debt. When you put all of this together, this chancellor has a harder time delivering a falling debt path than any of his predecessors, according to the OBR. It’s high borrowing and poor growth rates that are coming home to settle down.”
He added: “What households will feel over the next year will be an enduring pain. Inflation is falling, but prices remain much higher. Profits have not caught up.”
The Chancellor has a fiscal rule to cut debt in the final year of the financial forecast as a percentage of GDP, which OBR says he will meet at just over £6bn based on the Government’s outline plans.
But Mr Johnson said: “He couldn’t be any closer to breaking it without actually breaking it.
“The only reason he doesn’t break it is because he has a bunch of numbers in it that frankly aren’t plausible.”
He emphasized that the Chancellor assumed that he would start raising the mineral oil tax next year, that new investment relief for trade tax was only temporary and that he would be planning some “very tight spending figures” for the future.
https://www.standard.co.uk/news/politics/ifs-institute-for-fiscal-studies-lost-decade-jeremy-hunt-spring-budget-b1067765.html Forget post-election tax cuts, we’re stuck in a lost decade, says IFS
