Jeremy Hunt’s budget leaves household incomes stagnant and people paying higher taxes despite cuts to public services, the Resolution Foundation has said.
The think tank, which aims to improve the standard of low and middle-income families, said the chancellor had announced an “impressively broad suite of policies” to encourage more people into work.
However, it said: “Britain’s economy remains stuck in a deep funk – with people supported into work but getting poorer, and paying more tax but seeing public services cut.”
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Here are the key findings of the Foundation’s budget analysis.
Beating the odds on a recession
The UK is forecast to have gone through “the biggest energy and inflation shock since the 1970s, while avoiding a recession, with unemployment peaking at just 4.4%,” the Foundation said.
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It compared it to the mid-1970s energy shock which saw a recession with a 3.9 peak-to-trough fall in GDP.
A decline in living standards
However, RF pointed to a “disastrous decline in living standards”, with typical real household disposable incomes on track to remain lower by the end of the forecast in 2027-28 than they were before the pandemic.
“If even the slow growth of the past decade had continued, incomes would still be £1,800 higher than currently projected for 2027-28,” it said.
Taxes on track to hit 70-year high
RF said taxes as a share of GDP are on track to hit 37.7% by the end of the forecast, a 70-year-high and a 4.7% increase since 2019-20, the equivalent to nearly an extra £4,200 for every UK household.
It said despite this the chancellor only has a quarter of the average fiscal headroom of his three predecessors and would not meet the fiscal targets set by Rishi Sunak, Philip Hammond or George Osborne when they were chancellor.
Help for parents
The analysis notes the budget includes the biggest increase in childcare support on record, which it said would encourage more parents to work and make it worthwhile for many to work longer.
RF said under the current childcare system, a single parent of a one-year-old earning the National Living Wage would see their income fall after childcare costs by £370 if they moved from 25 to 35 hours of work a week.
However under the new system the same single parent would receive an income boost of £700.
However, RF said the richest fifth of households are set to gain £180 on average from the extra childcare entitlement, compared to £130 for the middle fifth of households and £20 for the bottom fifth.
More on Budget 2023:The key points of the budget at a glance
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‘An unneeded tax break for wealthy pension savers’
The report was critical of the chancellor raising the annual allowance and scrapping the lifetime allowance for tax-free saving, which it said cost around £1.2bn and were expected to increase employment by 15,000 – a cost of around £80,000 per extra worker.
However, the Foundation said “even those employment gains may be overstated, given that giving very large wealth boosts will actually encourage some people to retire earlier than they otherwise would have done”.
It said someone with a £2m pension pot will have received a tax cut of almost £250,000.
RF said the chancellor had chosen to “ignore pressures on public services”, even though unprotected departments face 10% cuts to real day-to-day spending per capita by the end of the budget, raising to 14% if the newly announced aspiration to raise defence spending to 2.5% of GDP is met over the next parliament.
An investment ‘roller-coaster’
The Foundation said the £28bn three-year increase in investment allowances represents the fifth major corporate tax change in two years, which it said illustrated “the lack of certainty that has frustrated businesses”.
It said: “The policy will deliver a temporary 3% boost to investment, when what Britain actually needs is a permanent 30% boost to catch up with our competitors (France, Germany and the US).”
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‘UK’s underlying challenges remain largely unchanged’
Torsten Bell, chief executive of the Resolution Foundation, said: “Jeremy Hunt’s first budget was a much bigger affair than many expected, combining improvements to the dire economic and fiscal outlook with a significant policy package aimed at boosting longer-term growth in general, and the size of the workforce in particular.
“A step change in childcare support stands out.
“But stepping back, the UK’s underlying challenges remain largely unchanged.
“We are investing too little and growing too slowly. Our citizens’ living standards are stagnant. We ask them to pay higher taxes, while cutting public services.
“No one budget could turn that around, but it’s time Britain did.”