Sunak’s policies face more flak
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 yesterday.
The Institute for Fiscal Studies (IFS) said the poorest face “real pain” and middle earners will lose out. Chancellor 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 feel-good 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 to 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 real 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.
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, the IFS director 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 longterm growth – or indeed levelling up,” Mr Johnson said. With the possibility of inflation hitting the highest level in three decades, he warned that “millions will be worse off in the short term”.
Mr Sunak has sought to reassure Tory MPs and voters that he aims to reduce taxes by the next general election, but he has been unable to say when the fiscal conditions will allow this. “As I said very clearly yesterday, my ambition is to lower taxes for people, that is what I would like to do as Chancellor,” he told Sky News.
“We had to take some corrective action as a result of the crisis and the response we took to it,” he added, “but hopefully that now is done and our priority is to make sure that work pays, that we reward people’s efforts.”