UK facing collapse in living standards with recession looming
THE UK faces a collapse in living standards, higher bills, tax hikes and increased unemployment as the economy slumps into recession.
Chancellor Jeremy Hunt told MPs yesterday he was having to make difficult decisions to ensure a “shallower downturn”, but the economy was still expected to shrink 1.4% in 2023.
A majority of households will be worse off as a result of Mr Hunt’s decisions, which will see the cap on energy bills increase and the tax burden rise to its highest sustained level since the Second World War.
In his long-awaited Autumn Statement, he also pledged an extra £1.2bn for the Welsh Government as part of several measures to try to “restore stability, bring inflation down and balance the nation’s books”.
But forecasts from the Office for Budget Responsibility (OBR) have indicated the biggest fall in disposable income since records began, with household incomes not expected to get back to pre-pandemic levels until 2028.
At the Commons, the Chancellor said the UK Government would be “asking more from those who have more” as they moved to raise more money through tax.
Some of the biggest announcements came in the form of additional cost-ofliving payments for the vulnerable, a rise in state pension, and a new minimum wage set to be introduced next year.
In other changes, electric cars will no longer be exempt from road tax. Tax free allowances for dividends and capital gains tax will also be cut. But infrastructure projects like HS2, the Sizewell C nuclear plant and Northern Powerhouse rail will go ahead.
The Chancellor also said the UK Government would support the advanced technology research centre in Wales.
Mr Hunt blamed Russian president Vladimir Putin’s invasion of Ukraine for a “recession made in Russia”, with the spike in energy prices driving up inflation, but he was also being forced to manage the financial turmoil caused by his predecessor Kwasi Kwarteng’s mini budget in September.
The financial statement outlining Prime Minister Rishi Sunak’s government’s economic plans comes just eight weeks after – and was in stark contrast to – former Mr Kwarteng’s now scrapped mini budget, which planned £45bn in tax cuts but led to the Pound collapsing against the Dollar and contributed to Liz Truss stepping down as prime minister.
Yesterday’s announcement was a bid to fill the economic gap the country faces which The Treasury estimates is around £54bn.
The majority of measures announced will apply to Wales, aside from the extra spending allocated to health and education as these are devolved to the Welsh Government and will be absorbed by the additional £1.2bn allocation.
Rebecca Evans, the Welsh Government’s Finance Minister, said: “We should be under no illusions; this statement confirms we are in a deep recession. Real incomes are set to fall by 7% over the next two years, while inflation is at its highest rate in 41 years.
“Today’s Autumn Statement is an invoice for the UK Government’s failure to manage the economy over the last 12 years. It provides pain today and pain tomorrow, with higher taxes and energy costs now and spending cuts to come. Ultimately, it leaves people paying more for less.
“Throughout this process I have made clear to the Chancellor that Wales cannot afford deep and damaging austerity. I am relieved that the Chancellor has at least partially responded to my calls for more funding for public services in the here and now.
“However, let me be clear that today’s statement doesn’t even come close to providing the funding needed to protect public service budgets against the immense challenges caused by record inflation. We will be carefully analysing the detail of today’s announcements ahead of our December budget.”
The OBR forecast unemployment would rise by 505,000 from 3.5%, to peak at 4.9% in the third quarter of 2024.
Inflation is expected to be 9.1% over the course of this year and 7.4% next year, contributing to a dramatic fall in living standards.
The OBR’s assessment said: “Rising prices erode real wages and reduce living standards by 7% in total over the two financial years to 2023-24 (wiping out the previous eight years’ growth), despite over £100bn of additional government support.”
In an effort to get a grip on the public finances, Mr Hunt set out plans for almost £25bn in tax increases and more than £30bn in spending cuts by 2027-28.
The OBR said the tax burden – the ratio of taxes as a share of gross domestic product, a measure of the size of the economy – would peak at 37.5% in 2025
“which would be its highest level since the end of the Second World War”.
Treasury analysis suggests about 55% of households will be worse off as a result of the tax and spending decisions made in the Autumn Statement.