Living Standards And Economy Still Stalling Despite Autumn Statement Tax Cuts
Chancellor Jeremy Hunt delivers his Autumn Statement to the House of Commons (Alamy)
The Office for Budget Responsibility has concluded that overall tax levels will continue to reach a record high as living standards struggle to rise, despite the government's decision to cut National Insurance and reform business contributions.
The independent body, which regularly produces analysis of the UK economy, also made stark forecasts about living standards and the country's economic growth in its report accompanying Prime Minister Rishi Sunak and Chancellor Jeremy Hunt's Autumn Statement.
Announcing the government's economic agenda to the House of Commons on Wednesday, Hunt said government efforts to tackle inflation meant he was able to reduce National Insurance by two per cent and increase the minimum wage as part of "make work pay" plans.
Inflation dropped to 4.6 per cent in October, allowing the Prime Minister to tick off his goal of seeing inflation halved. Today Hunt said that the government was on course to achieve their remaining economic goals of reducing national debt and sparking economic growth.
But while Sunak and Hunt were keen to celebrate headline announcements in today's statement, the OBR's economic forecast to accompany the fiscal event included several projections which suggesting the country still faces severe economic challenges.
Despite the two per cent cut to National Insurance contributions, which Hunt said the government would introduce in January 2024 using "emergency" leigslation, the overall tax burden is on course to reach 37.7 per cent of GDP by 2028/29, according to the OBR — the highest level in 70 years.
The OBR said that living standards, which describes households real-terms disposable income, is set for the biggest reduction since records began in the 1950s. They are forecast to be 3.5 per cent lower in 2024-25 compared with pre-pandemic levels.
The government remains on course to deliver economic growth but the OBR has lowered the estimated size of growth compared with the report it produced in March. The body forecasts that the economy will grow by 0.7 per cent in 2024, down from the March forecast of 1.8 per cent, while the 2025 figure has been reduced to 1.4 per cent from 2.5 per cent.
The OBR report calculates that the money spent by the government to deliver tax cuts in the Autumn Statement was raised by a real-terms cut to departmental spending worth nearly £20bn. "The outlook for departmental spending is therefore a significant and growing risk to our forecast," the body said.
This detail has prompted concerns about added pressure on public services like the hospitals, schools and prisons, with Nick Davies of the Institute for Government think tank warning "an even tighter" squeeze was coming.
"Spending plans look even more implausible now than in March, with the chancellor choosing to cut taxes at the cost of an even tighter squeeze on public services," said the IfG's programme director Nick Davies, whose work specialises in public services.
"The chancellor has abdicated his responsibility for public service performance, leaving it for the next government to pick up the pieces."
The executive chair of liberal conservative think tank Bright Blue, Ryan Shorthouse, told PoliticsHome that he thought the Autumn Statement had some "very positive small steps" but that "if the Tories are going to turn it around for the party but more crucially for the country and the economy, greater strides are needed".
While he welcomed the new tax cuts, he was sceptical of the extent to which the chancellor will have the fiscal headroom to enable them in the coming months and years.
"For those of us on the centre right, we think getting money to people directly rather than through bureaucracies is often the best efficient use of money," he said.
"However, having said that, I would also say that in the future, there is going to be an increased demand on public services, population is growing in part because of immigration, but also largely because people are living longer.
"So the demands on services, particularly on health and social care will just rise. So the question is how that will be funded and either you need much more significant reform or you need much more significant funding, and that's a question for either party."
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