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Middle Income Families Will Be Hit Hardest By “Higher Tax State”, Think Tank Warns

Middle Income Families Will Be Hit Hardest By “Higher Tax State”, Think Tank Warns

Rishi Sunak admitted in his Budget statement yesterday that he was “uncomfortable” with the rising tax burden (Alamy)

3 min read

Weak wage growth and rising taxes mean that middle income earners will be hit hardest by 2026-27, the Resolution Foundation has warned.

The leading think tank said households will have lost the equivalent of £3,000 each under Boris Johnson.

“We're becoming a bigger state and a higher tax state,” James Smith, research director at the Resolution Foundation (RF), said on Thursday.

He described the rising tax bills for families as a “really chunky change” which most hits “people on higher and middle incomes”.

Smith also said that the poorest fifth of the country will be £280 a year worse off due to cuts in Universal Credit, despite the “welcome rise” in the National Living Wage. 

“We’re not set for the low-tax economy that the Chancellor wants or the high wage economy that you see on the horizon,” he continued.

“There's good news on the public finances, reflecting the economy and that and that good news is basically enough to keep No.10 happy and the Treasury happy, both in terms of more spending and bringing down the debt. 

“But slow growth is really casting a shadow and continuing to cast a shadow over what's happening in terms of the overall outlook and household finances are still in pretty bad shape, a huge challenge, despite the welcome rise in the National Living Wage,” he said.

Office for Budget Responsibility (OBR) chairman Richard Hughes told an RF briefing on Thursday that the Chancellor’s ambitions to cut debt could “easily be wiped” out by lower growth, rising interest rates or further inflation.

He explained that Sunak had managed to put around £20-25 billion of revenue left over from increased taxes and better-than-forecast growth towards reducing debt, but said overall it was “broadly plateauing”. 

“It is falling by 0.6% of GDP in the target year, from a level of around above 80% of GDP – that is one-sixth of our three-year ahead forecast error for the debt to GDP level,” Hughes continued.

“It could easily be wiped out by 1% lower growth in that year, or a 1% increase in interest rates or higher inflation.

“So it is the narrowest of margins against which to achieve the Chancellor’s fiscal objectives, but nonetheless he gets it on a slightly declined trajectory over the medium term.”

Chancellor Rishi Sunak admitted in his Budget statement yesterday that he was “uncomfortable” with the rising tax burden, but told MPs it was “his mission” to reduce taxes by the end of the parliament in 2024.

“I acknowledge the tax burden is high, it’s not something I am comfortable with, it’s the result of us suffering the worst economic shock we have had in 300 years and the response that we put in place to help get the country through that,” he told ITV on Thursday. 
 

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