Millions ‘worse off’ in rising costs and taxes
ECONOMISTS have warned that millions of people will be worse off due to rising costs and tax increases as the Chancellor’s Budget came under intense scrutiny.
The Institute for Fiscal Studies (IFS) said the poorest face “real pain” and middle earners will lose out.
Rishi Sunak had claimed it was a strategy to “usher in a new age of optimism”, but the leading economic think tank warned the public “may not get much feelgood factor”.
Instead IFS director Paul Johnson said living standards for many will fall with high inflation, rising taxes and poor growth being “undermined more by Brexit than by the pandemic”.
His warning came as the Resolution Foundation said the poorest fifth will be around £280 a year worse off despite the Chancellor softening the blow of his Universal Credit (UC) cut.
Researchers at the living standards think tank said three-quarters of households on the welfare scheme will be worse off despite the new tapering rules announced in the Budget.
Taxes will reach the highest level since the post-war recovery in 1950 and be £3,000
higher for the average UK household compared with when Boris Johnson became Prime Minister in 2019, they added.
That was coupled with a forecast that the weakest decade of pay growth since the 1930s, combined with rising inflation, means wages are set to fall again next year.
Mr Sunak insisted that it remained his “ambition” to “lower taxes for people” and insisted he had to take “corrective action” as a result of the coronavirus pandemic.
On Wednesday he outlined tax cuts for businesses, a rise to the “living wage” and a freeze to fuel duty as he sought to dampen the looming cost-of-living crisis.
IFS director Paul Johnson described the almost two decades of minimal growth in wages as “unprecedented” and issued a warning of hardship ahead of a 1.25% hike in national insurance.
Despite the “real and substantial” rises in public spending, he said finances in many departments will be “substantially less” in 2024/25 than back in 2010.
He highlighted spending per student in further education and sixth form colleges as one area where levels will be “well below”.
“This is not a set of priorities which looks consistent with long-term growth – or indeed levelling up,” Mr Johnson said.
With the possibility of inflation hitting the highest level in three decades, he warned “millions will be worse off in the short term”.
Mr Johnson said there will be a “real, if temporary” hit of hundreds of pounds a year for benefits recipients as welfare payments will rise by around 3%, while inflation could be 5%.
“We are not at 1970s levels of inflation but we are experiencing enough inflation that real pain will be felt as low-income households – most of whom have little in the way of financial assets – wait more than a year for their incomes to catch up,” he added.