Hunt’s higher taxes could be here to stay for ‘several decades’, think-tank warns

A “series of economic own goals” has worsened Britain’s “long, hard, unpleasant journey”, economists have warned as they forecast Chancellor Jeremy Hunt’s record-high taxes are “here to stay”.

The Institute for Fiscal Studies (IFS) said the biggest drop in living standards would “hit everyone”, but that “Middle England is set for a shock” as taxes are hiked as wages fall.

“The truth is we just got a lot poorer,” the economic thinktank’s director Paul Johnson said.

In comments that will further enrage Tories angered by the plans, Mr Johnson said “higher taxes and a bigger state” are likely to stay for the “next several decades”.

He listed the self-inflicted wounds to growth as including Brexit, austerity-era cuts to education spending and Liz Truss’s disastrous minibudget, which he described as a “large own goal”, as well as the general political chaos of recent months.

Jacob Rees-mogg is among the senior Conservatives who have criticised the £25 billion of tax rises unveiled by Mr Hunt in his autumn statement on Thursday as he acknowledged the UK was already in recession. The Chancellor has hit back, defending his “very Conservativepackagetomake sure we sort out the economy” and arguing there is “nothing Conservative about ducking difficult decisions”.

Mr Johnson warned the drop in living standards forecast is the “biggest fall in living memory” and comes “off the back of very poor income growth for many years”.

“This will hit everyone, but perhaps it will be those on middling sorts of incomes who feel the biggest hit,” he said.

“They won’t benefit from the targeted support to those on means-tested benefits. Their wages are falling and their taxes are rising. Middle England is set for a shock.”

Mr Johnson said the Government was “reaping the costs of a long-term failure to grow the economy”, the effects of an ageing population and high levels of borrowing in the past.

“The truth is we just got a lot poorer,” he said. “We are in for a long, hard, unpleasant journey; a journey that has been made more arduous than it might have been by a series of economic own goals.”

The economist said “very clearly Brexit was an economic own goal”, particularly “the hard type of Brexit we’ve had, distancing ourselves from the single market” of the European Union.

“Obviously the mini-budget of a couple of months didn’t help – in fact, that was another large own goal,” he said.

Mr Johnson said the “general economic and political instability and uncertainty” over recent years, including “reversing policy here, there and everywhere” and the downfalls of Boris Johnson and Ms Truss, have also hit growth, as have cuts to education and investment spending.

“I would be most surprised if the tax burden gets back down to its long-term precovid average at any time in the next several decades,” he said. “Higher taxes and a bigger state look to me to be here to stay unless something quite radical changes.”

Mr Johnson said the postelection spending plans are “really pretty austere”, and combined with high taxes and borrowing “that’s a pretty nasty place to be”.

Scotland will have a clearer picture on whether taxes will also rise north of the border when the Scottish budget is announced on December 15. However, deputy first minister John Swinney has already conceded Scots should be braced for increased taxes and further cuts to public services due to the impact of inflation.

Mr Rees-mogg, the former business secretary, strongly criticised the Chancellor’s approach, warning the increases would hit many people who are not particularly well off, including some who are receiving benefits.

“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,” he told Channel 4 News. “What we actually need to be doing is having a strategy for growth and looking to lower taxes.”

But Mr Hunt struck back, telling BBC Radio 4’s Today programme that “sound money matters more than low taxes”.

“What I would say to my Conservative colleagues, is there is nothing Conservative about spending money that you haven’t got,” he told Sky News.

“There is nothing Conservative about not tackling inflation, there is nothing Conservative about ducking difficult decisions that put the economy on track. And we’ve done all of those things and that is why this is a very Conservative package to make sure we sort out the economy.”

Independent analysts said Mr Hunt’s promised £30 billion of spending cuts would mean a prolonged squeeze on public sector pay despite a growing clamour in many services for real-terms increases after the years of austerity.

Meanwhile, economists at the Resolution Foundation warned workers are living through a two-decade wage stagnation costing £15,000, piling further pressure on those in the “squeezed middle”, who face a permanent 3.7 per cent income hit – higher than the very richest.

Mr Hunt denied his plans were a raid on workers, saying: “No, it’s a plan that gets us through very difficult times that are being faced by other countries all over the world and it gives people certainty. It’s not possible to raise £25bn of taxes just focusing on a very small group of rich people.”

The IFS said much of the cuts that had been pushed back to past the next general election “should be taken with a large pinch of salt” as economists questioned their credibility.

But Mr Hunt said he was “not guilty” of putting off cuts until after the next general election.