IFS Say Inflation Will Leave “Millions Worse Off”, Despite Rishi Sunak’s “Upbeat” Budget
A leading economic think tank says Rishi Sunak’s “upbeat” Budget does not match the reality for living standards and “millions will be worse off in the short term”.
Paul Johnson, director at the Institute for Fiscal Studies (IFS), said inflationary pressure and tax rises means a “middle earner is likely to be worse off next year than this”.
His analysis comes a day after the Chancellor unveiled a Budget and Spending Review in which he allocated an extra £150billion for public services, a rise in the minimum wage and reform of the taper rate on Universal Credit.
Sunak said the fiscal event was meant “to usher in a new age of optimism”, but Johnson said this morning: “Unfortunately for him, and for us, the outlook for living standards does not match this upbeat tone.
“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.”
He said that this comes “on top of a decade of historically feeble increases in real incomes”, as he highlighted the forecast from the independent Office for Budget of Responsibility (OBR) suggesting inflation will hit its “highest rate in the UK for three decades”.
“Next April benefits will rise by just over 3%, but inflation could easily be at 5%,” Johnson said.
“That will be a real, if temporary, hit of hundreds of pounds a year for many benefit recipients.”
Johnson began his post-Budget analysis presentation by highlighting that fiscally speaking, this year “will go down as a once in a decade event”, up there with Geoffrey Howe’s Budget in 1979, Gordon Brown’s in 2002, and George Osborne ushering in the age of austerity in 2010.
“To that list we can now add 2021. This is the year when a Conservative chancellor raised taxes by £40 billion or so; when the tax burden was put firmly on a path to exceed 36% of national income and hence settle at a record sustained level”, the IFS director said.
Sunak has repeatedly justified controversial Tory tax rises and spending by pointing to an economy "scarred" by the coronavirus pandemic, but Johnson was sceptical on this matter.
“This is almost entirely a set of policy choices unrelated to the pandemic," he said.
"What we have had is a chancellor responding to the ever-increasing demands of the healthcare system on the one hand, and the increasingly dire plight of the likes of the justice, social care and prison systems, starved of funding for a decade, on the other.”
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