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The UK is facing a record low for living standards, analysis of yesterday’s budget shows, despite the pre-election tax cuts announced by chancellor Jeremy Hunt.
The Resolution Foundation has crunched the budget, and concluded that Hunt has “thrown fiscal caution to the wind”, leaving very little room (just £8.9bn) to hit his fiscal rule to have debt falling in five years.
But while Hunt has made a net tax cut of £9bn, the UK’s cost of living crisis means real household disposable incomes (how much money households have after tax, adjusted for inflation) are set to fall from 2019 to 2025 – for the first parliament in modern history.
And looking further ahead, the tax take will be a 70-year high by 2028-29. Torsten Bell, chief executive of the Resolution Foundation, warns that the budget maths is based on fictional cuts to public services after the election: "The £19bn of cuts to unprotected public services after the next election are three-quarters the size of those delivered in the early 2010s. The idea that such cuts can be delivered in the face of already faltering public services is a fiscal fiction.“
"Budgets are always a big day for Westminster, but the big picture for Britain has not changed at all. This remains a country where taxes are heading up not down, and one where incomes are stagnating.
“Big tax cuts may or may not affect the outcome of that election, but the task for whoever wins is huge. They will need to both wrestle with implausible spending cuts, and also restart sustained economic growth – the only route to end Britain’s stagnation.”
Yesterday, the Office for Budget Responsibility (OBR) said Hunt’s plans meant funding for non-ringfenced government departments – including local government and prison services – was on track to fall by 2.3% per year.
Here are some of the key points from Resolution’s analysis (they’ll be discussing the budget at an event this morning):
• Filling out the tax sandwich… Fresh cuts in national insurance and fuel duty, coupled with previously announced tax threshold freezes, mean a net tax cut of £9bn is taking effect in the election year. But this is dwarfed by the estimated £27bn of tax rises that came into effect last year (2023-24) and the £19bn coming in after the election (2025-27).
• By throwing fiscal caution to the wind. The chancellor’s headroom against his fiscal rules is the second lowest on record, just a third of the average level seen since 2010. But this is not because his fiscal rules are strict – in fact, the plans in this budget would violate three out of the four sets of such rules followed by Conservative chancellors since 2010.
• Britain’s £14,000 wage depression... Despite the OBR reducing its forecast for inflation, real average wages are only set to regain their 2008 levels in 2026, a staggering near-two lost decades of pay growth. Had pay instead continued along its pre-financial crisis path over this period, the average worker in 2023 would have been about £14,000 better off.
• And a record low for living standards. Across this parliament (2019 to 2025), real household disposable income is set to fall by 0.9 per cent – the first parliament in modern history to see a fall in living standards.
The Resolution Foundation also reports pensioners are the big losers from the budget. That’s because national insurance, which was cut by another 2p in the pound yesterday, is paid by workers on their wages, but not by the retired.
Overall, Resolution says, the policy choices announced during this parliament have shifted support from the rich and the old to the young and the poor.
In other news ... The recovery in UK house prices continued last month, new data from Halifax this morning shows. Average house prices rose by 0.4% in February, the fifth monthly rise in a row. That left property prices 1.7% higher on an annual basis, a slowdown on the 2.3% increase in the 12 months to January.
The typical UK home now costs £291,699, about £1,000 more than last month, Halifax reports. In London, prices were higher on an annual basis for the first time since January 2023, while they’re rising fastest in Northern Ireland (up 5% in the last year).
There’s also a flurry of takeover action in the City this morning, as Nationwide strikes a deal to buy rival Virgin Money. The deal values Virgin Money at nearly £3bn and would create the second-largest provider of mortgages and savings in the UK.
The agenda
• 9am GMT: Resolution Foundation event
• 10.30am GMT: IFS presents its budget analysis
• 12.30pm GMT: Challenger report on US job cuts
• 1.15pm GMT: ECB interest rate decision
• 1.45pm GMT: ECB press conference
We’ll be tracking all the main events throughout the day ... |
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