UK living standards to plunge
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 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.
The Chancellor 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.
He faced criticism however from some Tories, with former business secretary Jacob ReesMogg warning that taxation was “too high”.
Mr Rees-Mogg, who quit when Rishi Sunak became Prime Minister, told Channel 4 News: “I think we need to look at the efficiency of government to make sure money is well spent before reaching for the easy option of putting up taxes.”
The Office for Budget Responsibility (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 £100 billion of additional Government support.”
In an effort to get a grip on the public finances, Mr Hunt set out plans for almost £25 billion in tax increases and more than £30 billion in spending cuts by 2027-28.
The OBR said the tax burden – the ratio of taxes as a share of gross domestic product (GDP), a measure of the size of the economy – would peak at 37.5% in 2025-25 “which would be its highest level since the end of the Second World War”.
Mr Hunt said Mr Kwarteng was “correct to identify growth as a priority” but “unfunded tax cuts are as risky as unfunded spending”.
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.
But Mr Hunt told MPs he was protecting the vulnerable, including by increasing state pensions, disability and working age benefits by September’s 10.1% inflation figure from next April.