Higher taxes mean middle-income households will be worse off by the middle of the decade, according to a new budget analysis by The Resolution Foundation, a standard of living think tank.
The study suggests that the tax as part of the economy will reach its highest level from 1950 to 2026-27. This equates to an increase of £3,000 per family since Boris Johnson took office as prime minister.
This is because weak wage growth will lead to a fall in real wages next year, which is attributable to inflation. This is even as Britain is experiencing its worst decade for wage growth since the 1930s.
Britain’s stable standard of living “remains a key feature of this era” said the think tank. In the 16 years leading up to 2008, pay packets grew by an average of 36 percent over the 16 years to 2024 by 2.4 percent.
The budget revealed, “the high-wage economy, or even the low-tax economy envisioned by the prime minister last month, which Rishi Sunak called his target yesterday,” said Torsten Bell, chief executive of the Resolution Foundation. “Instead the chancellor has set out plans for a new higher tax, larger state economy.”
“High taxes are no surprise as the UK is combining fiscal conservatism with an aging society and a slow-growing economy. But this is the end of low tax conservatism, with £3,000 per household in taxes by the middle of this decade. has increased,” he said.
Even with the changes made to Universal Credit by the chancellor on Wednesday, three-quarters of households are likely to suffer more from the £20 cut than benefit from their new measures.
The change, to allow families to keep up to 8p more per pound earned on benefits, would be a big boost for some families who are able to work, but they may be “overshed” by a massive £6bn cut by Mr. Will go Sun 06 October.
There is no clear end to the austerity yet, the think tank concluded. This is despite the chancellor spending at its highest level – aside from the recession – since the 1980s.
The budget kept the departmental budget from collapsing, but it reversed only one-third of the cuts introduced after 2010 for so-called “vulnerable departments” beyond health and education. This means that departments such as work and pensions, and transport have per capita budgets that are 40 and 32 per cent lower, respectively, compared to 2009-10 levels.
“While tax revenues and NHS spending are growing rapidly in this economy, growth in pay packets and family incomes look far more vulnerable – a major challenge made easy by the welcome increase in the national living wage and the promotion of Universal Credit, But it didn’t go away,” said Mr. Bell.
He said the challenges of climate change, Brexit and the pandemic were not adequately addressed by the chancellor on Wednesday. As a result, the UK needs “an economic strategy that will propel us through this period of enormous economic change”.
This gap in the budget also includes a lack of clear plans to address the transition to a low-carbon economy in the coming decades.
The chancellor’s move to halve air passenger tariffs on domestic flights and uphold a long-standing moratorium on fuel charges caused an uproar ahead of the UN Cop26 climate conference in Glasgow. In addition to tax cuts on carbon-emitting activities, there was not enough spending devoted to climate goals, economists warned.
“The budget did not indicate a laser-like focus on meeting zero targets,” the Resolution Foundation said. Spending on climate adaptation policies was too low to be “in line with what is required for the government’s own path to net zero plans”.
The better-than-expected performance of the economy allowed the chancellor to present a budget that spurred spending, but also left some buffer within his rules for falling ‘underlying debt’ by 2024-25. But the size of the current ‘windfall’, often referred to as headroom, from higher GDP growth within these rules was not large given the extent of uncertainty facing the UK economy.
The Resolution Foundation challenged the use of such rules, and instead proposed greater flexibility, allowing more spending in the event of weak GPD growth.
“It is extremely important that regulations enable fiscal policy to support the economy through a more severe economic downturn”, the think tank said.
Credit: www.independent.co.uk /