Brits face a winter of “real pain” snared by 5% inflation and Rishi Sunak’s tax bombshell Budget , a damning think tank analysis declared today.The Institute for Fiscal Studies warned despite the tax burden hitting its highest in 70 years, the Budget fails to “level up” and will leave Brits with no “feelgood factor”.
The respected group said while benefit claimants are due a 3% rise next April, inflation could “easily” hit 5% by then – even higher than Mr Sunak forecast.
IFS director Paul Johnson warned: “That will be a real, if temporary, hit of hundreds of pounds a year for many benefit recipients.
“We are not at 1970s levels of inflation, but we are now experiencing enough inflation that real pain will be felt as low income households – most of whom have next to nothing in the way of financial assets – wait more than a year for their incomes to catch up.
“For some in work that may never happen.”
It came after the Resolution Foundation, another think tank, claimed households will pay £3,000 more in tax on average by 2026/27 than when Boris Johnson took office.
And it warned real-terms wages are expected to have grown by just 2.4% between May 2008 and May 2024, compared to 36% between May 1992 and May 2008.
The Treasury disputed the £3,000 figure, saying: “It’s misleading to imply that households will immediately face a £3000 tax hit because this figure appears to include business and employers taxes which aren’t applicable directly to households.
“The same report shows that the government’s policies are set to boost incomes for those at the bottom of the distribution, and that higher taxes will mostly impact middle-to-higher income households.”
Rishi Sunak yesterday announced more than £2bn-a-year of help for 1.9million working households on Universal Credit – changing taper rates to increase their payments.
But 4million workless families will get nothing, the IFS said – meaning they will lose an extra 1% in real terms between April 2021 and April 2022.
And Mr Johnson said the £500m invested in children’s services including new “family hubs” will be “small beer compared to the cuts in Sure Start” by Tory governments.
Mr Johnson called the Chancellor’s spending review a “a once in a decade event” – comparable to the huge tax rises of 1993 or the first Budget of the Thatcher government.
Budget documents claim tax changes will deprive the Treasury of £35bn between 2020/21 and 2022/23 – before then netting it nearly £66bn between 2023-24 and 2025/26.
Rishi Sunak insisted taxes were only rising to their highest since the 1950s due to Covid.
But Mr Johnson said the Budget splurge – including a tax cut for sparkling wines and beer, half-price business rates and a climate-bashing cut in Air Passenger Duty for domestic flights – was “almost entirely a set of policy choices unrelated to the pandemic.”
Despite claiming he was a low-tax Chancellor, Mr Sunak has “raised taxes by £40billion or so” and the tax burden is set to hit a “record sustainable level”, Mr Johnson said.
He said inflation was set to outpace wage and welfare hikes and suggested the Government was shortchanging education while showering the NHS with cash.
He said: “The worry for the government is that, for all the chancellor’s upbeat delivery, the voters may not get much feelgood factor.
“High inflation, rising taxes, and poor growth, still undermined more by Brexit than by the pandemic, will see real living standards barely rising and, for many, falling over the next year.”
He added: “Over the next several years a combination of tax increases and high inflation will mean very slow growth in living standards.
“A middle earner is likely to be worse off next year than this as high rates of inflation and tax rises more than negate small average wage increases.This of course comes on top of a decade of historically feeble increases in real incomes.”
Meanwhile a possible Council Tax bombshell is looming despite years of above-inflation rises.
The Treasury has modelled letting town halls hike tax by 3% a year between 2022/23 and 2024/25 – but has not ruled out raising that limit higher.
Budget watchdog the OBR said it “expects” net council tax receipts to keep rising by 6% a year – from £38.4bn this year to £48.4bn by 2026/27.
And IFS economist Ben Zaranko warned: “Some cuts to some council services seem highly likely if central government doesn’t provide additional funding.”
He said grant funding would rise by a “sizeable” £1.6bn next year but is then frozen after that – forcing three-quarters of any spending increases to come from council tax.
IFS chief Mr Johnson said the gap between living standards today and what Brits might have expected before the financial crisis hit in 2008 was “staggering”.
He added: “The gap between what we might have expected on the basis of pre financial crisis trends and what is actually happening is staggering.
“Average gross earnings could have been some 40% higher had pre crisis trends continued.”
Meanwhile Mr Sunak’s boast that the Government was returning per-pupil education spending to 2010 showed a “remarkable lack of priority afforded to the education system”, the economist said.”Over this spending review period education spending is set to rise by about 2% a year against a 4% a year increase for the department for health and social care.
“Over the whole period since 2010, by contrast, health spending will have increased by over 40%, education spending by less than 3%.
“For the chancellor to have felt it appropriate to draw attention to the fact that per pupil spending in schools will have returned to 2010 levels by 2024 is perhaps a statement of a remarkable lack of priority afforded to the education system since 2010.”
In summary, he said: “This is not a set of priorities which looks consistent with a long term growth strategy.Or indeed levelling up.”
Read more
Autumn Budget 2021 All Budget 2021 measures at a glance Universal Credit raised for 1.9m Brits Inflation to soar to 4% this year Beer and prosecco prices to fall Giving his Budget speech yesterday, Mr Sunak said: “My goal is to reduce taxes.
“By the end of this Parliament, I want taxes to be going down not up.”
But the Office for Budget Responsibility warned the tax burden has risen from 33.5% of GDP before the pandemic to 36.2% by 2026-27 – its highest for 70 years.
And a separate analysis today found Brits will pay £3,000 more in tax on average by 2026 than when Boris Johnson took office, just as families face deteriorating living standards
Overnight research by the Resolution Foundation found taxes as a share of the economy will soar to the highest level since 1950 by the middle of the decade.
That is a £3,000 hike for the average household since Boris Johnson became Prime Minister, the Foundation said..
It painted a deteriorating picture of family finances, with household incomes set to stagnate as a result of rising inflation.
TUC General Secretary Frances O’Grady said: “Britain is staring down the barrel of a cost-of-living crisis.
“We need a proper plan to get wages rising across the economy – but we didn’t get that from the Chancellor yesterday.
“The pay squeeze on family incomes is set to continue for years to come.After more than a decade of wage stagnation this is the last thing working people need.”
Don’t Miss.
