In its analysis of yesterday’s spending review, the Institute for Fiscal Studies (IFS) said that the measures, which include raising taxes to the highest for 70 years were “almost entirely” unrelated to the pandemic.
“The worry for the government is that, for all the chancellor’s upbeat delivery, the voters may not get much feelgood factor,” said IFS Director Paul Johnson, in his opening remarks of a lengthy analysis of the budget on Oct. 28.
“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.”
Another economic think-tank, the Resolution Foundation, calculated that with the new budget, households will pay an extra £3,000 ($4,141) every year in tax since Prime Minister Johnson took office.
After “historic tax increases,” IFS head Johnson said the story of the budget was of “spending increases and a worrying outlook for living standards.”
Chancellor Rishi Sunak and the treasury had been criticised for trailing many of the policies in the media, for which they were rebuked by the Speaker of the House.
Johnson said that these briefings” served only to obfuscate.”
“Perhaps the Speaker was unduly concerned about the chancellor revealing too much of his Budget early. The truth is these briefings revealed less than nothing.”
The government said the public spending hike is backed by better-than-expected economic forecasts. “Employment is up. Investment is growing. Public services are improving. The public finances are stabilising. And wages are rising,” said Sunak during the budget announcement.
Sunak acknowledged that the tax burden will reach its highest level as a share of gross domestic product (GDP) “since the early 1950s” but insisted “I don’t like it” and stressed there have to be limits to the scope of the state.
Despite the upbeat message from Sunak, the IFS said that 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,” said Johnson. “This of course comes on top of a decade of historically feeble increases in real incomes.”
The Chancellor insisted to MPs that it is his ambition to bring taxes down by the next election, but the IFS director warned of the challenges while trying to fulfil the demands of public services that have suffered a decade of cuts.
Johnson said of Sunak: “If he is to achieve the ambition he set out at the end of his speech to get taxes down and reduce the size of the state, then he is going to have to come up with some pretty new and radical ways to manage those pressures.
“Finding the key either to reforming public services to make them cheaper and more efficient, or to getting higher economic growth, are challenges which have defeated most of his predecessors.”
Former shadow business secretary Pat McFadden responded to the Budget by accusing the Conservatives of being the party of both high taxes and low growth.
The Labour MP told BBC Radio 5 Live: “If we’re going to create wealth in the future then we have to invest in the workforce of tomorrow.
“The Government hasn’t been doing that and that’s again another reason why growth has been so low, and that brings the Chancellor to this choice between higher taxes and spending cuts all the time.
“The Tories are the party of high taxes because they’re the party of low growth.”
The Institute of Economic Affairs (IEA), a free market think tank, called it “another high spending Budget from a government which continues to use most of its available headroom to increase expenditure rather than to cut taxes.”
IEA Director General Mark Littlewood said the “eye-watering national debt” will continue to grow in cash terms because “there is no plan to run a budget surplus in the coming years.”
“The Chancellor is banking on strong economic growth to sustain the many additional billions of pounds of spending he has pledged.”
PA contributed to this report