In evaluating Jeremy Hunt's budget, the Resolution Foundation Thinktank reveals a historic downturn in household incomes throughout a parliamentary term, despite the Chancellor's insurance cuts.
Thinktank Warns of Falling Household Incomes in Historic Shift
Amid nearly two decades of falling real wages, the foundation declares that, after adjusting for inflation, households' disposable income is poised to drop by 0.9% from 2019 to the end of 2024, marking the first such decline in modern parliamentary history.
According to the foundation, Hunt's likely last budget prior to the general election which was delivered on Wednesday revealed that this has been “a parliament of flatlining growth, falling living standards, and notable redistribution from the old and the rich to the young and the poor”.
The foundation's overnight analysis signals the end of an era where tax policies favoured older age groups, with the Chancellor now directing benefits towards households led by younger individuals aged between 18 and 45, resulting in the largest gains.
The report indicates that this group is expected to receive benefits totalling £590, in stark contrast to an average loss of £770 for seniors aged 66 or older.
Hunt's Pre-Election Budget Raises Concerns Over Fiscal Caution
Torsten Bell, chief executive of the Resolution Foundation, emphasizes that Hunt's budget presents a £9 billion tax cut before the anticipated general election this year, accompanied by £19 billion in projected tax hikes in the following years.
In scrutinizing public finances, the Treasury's official forecaster, the Office for Budget Responsibility, notes that the Chancellor increased borrowing to fund most tax cuts, depleting the entire £13 billion reduction in borrowing costs.
In the November autumn statement, Hunt allocated £13 billion for contingencies at the conclusion of his five-year plan. However, in the spring budget, this reserve was diminished to £9 billion.
Bell remarked: “A pre-election budget produced another round of pre-election tax cuts. To deliver them, the chancellor has continued to throw fiscal caution to the wind, cutting his fiscal headroom to just a third of the average level seen since 2010. He would fail to meet three out of the four sets of fiscal rules used by his Conservative predecessors since 2010.”
He highlighted positive developments for middle-income earners and younger individuals, implying that taxpayers with earnings below £26,000 or exceeding £60,000 would experience losses. The most adversely affected demographic is pensioners, who are anticipated to collectively bear an £8 billion impact, he further noted.
“Looking at all policy changes announced, this parliament reinforces the sense that the government has reversed course from the approach that dominated during the 2010s. Back then, support was focused on pensioners and takeaways on poorer, younger households. This time, it is those aged over 65 and on the highest incomes who are set to lose most.”
Bell expressed concern over the government's strategy of relying on reductions in public services over the next five years to finance certain tax cuts. He emphasized the potential consequences and drawbacks associated with this approach, highlighting the need for a comprehensive evaluation of the fiscal trade-offs involved.
“The £19bn of cuts to unprotected public services after the next election are three-quarters the size of those delivered in the early 2010s. The idea that such cuts can be delivered in the face of already faltering public services is a fiscal fiction,”