Jeremy Hunt tax hikes and weak economy to swipe £10k from Britons while wealthy reap pension rewards
Britons are poised to miss out on £10,000 of income over the coming years after Chancellor Jeremy Hunt lifted taxes to their highest sustained level in history, experts have predicted.
When combined with sluggish economic growth , the Institute for Fiscal Studies (IFS) has estimated that the tax take means real incomes will be at the same level they were in 2015 by the middle of the decade.
If GDP had grown at its pre-financial crisis trend, Brits would have received a big real income boost, but the UK’s economic underperformance since 2008 is poised to continue, squeezing living standards.
Hunt’s tax rises – mostly freezing tax thresholds – have put the tax burden on track for its highest level since just after the second World War at 37.7 per cent, a level Britain has “never sustained in its history,” Carl Emmerson, deputy director of the IFS, said.
Separate calculations by the Resolution Foundation out today estimate the government has taken away more than £4,000 per household via higher taxes since 2019/20.
The Chancellor today defended his decision to stick with tax rises in his budget, saying the tax burden will have to stay high to balance the public finances.
Hunt did inject an average annual £15bn of additional spending into the UK economy over the next five years yesterday, including expanding free child care to working parents with younger kids and offering businesses investment tax reliefs.
He decided not to soothe freezing income tax thresholds, which the Resolution Foundation estimates will cost more than £1,000 for the typical family in five years.
Hunt yesterday decided to spend a large chunk of the around £20bn windfall he has received from lower energy prices, interest rates, inflation falling quicker than expected and better near term economic growth.
“Presented with a somewhat better fiscal outlook than he faced in November – but still much worse than expected a year ago – Mr Hunt decided to spend the larger part of this windfall,” Paul Johnson, director of the IFS, said today in the economic think tank’s post-budget analysis.
Scrapping pension allowance will mainly help richest (changes in incomes as a result of budget measures)
The Office for Budget Responsibility (OBR) reckons the economy will avoid a recession this year and, after suffering a mild 0.2 per cent contraction, will grow every year over the next five years.
That has contributed to reducing government borrowing by more than £100bn over the coming years compared to the fiscal watchdog’s November forecast.
But the OBR’s chair, Richard Hughes, warned today that the rosier borrowing path could be blown off course by “a list of things that aren’t in our forecast that could easily wipe out that head room”.
“The world has been very volatile for months if not years,” he said, referring to a series of successive shocks, namely the Covid-19 crisis and Russia’s invasion of Ukraine, buffeting the UK economy.
The benefits of Hunt’s child care support expansion will mostly flow to middle income households due to poorer families already having around 80 per cent of their nursery costs paid for by the state.
“Middle- and higher-income households will gain the most from the extension of the free hours, with the richest onefifth of households (including those with and without children) benefiting by £180, the middle fifth benefiting by £130, and the bottom one-fifth benefiting by just £20,” the Resolution Foundation said.
The Chancellor decision to scrap the lifetime tax free pension allowance will mostly help the richest in society, the Resolution Foundation said.
Shadow Chancellor Rachel Reeves said today Labour would ditch the policy, which she characterised as a ”giveaway for the wealthy”, if they win the next election.