Chancellor goes for broke on pre-election giveaways, but households are broke as they get £1,900 poorer over the parliament 23 November 2023 The Chancellor yesterday delivered an Autumn Statement with a few big ticket pre-election giveaways, and welcome policy measures to address problems such as our tax system’s bias against working-age earnings, our benefit system’s failure to keep pace with fast-rising rents, and firms’ weak incentives to invest. But the Autumn Statement failed to end a wider economic stagnation that, for the first time, will see households poorer at the end of the parliament than they were at the start, according to the Resolution Foundation’s overnight analysis of the Chancellor’s election-focused fiscal event. Key findings from the overnight analysis include: The top gain most from the Autumn Statement… Around 40 per cent the gains from the tax and benefit measures announced in the Autumn Statement – including cuts to National Insurance, boosts to Local Housing Allowance and changes to the Work capability Assessment – go to the richest fifth of the population. The top 20 per cent gain £1,000 on average, five times the gains seen by the bottom fifth (£200). …but lose most from decisions over the parliament. Taken together, all tax and benefit measures announced in this parliament remain progressive, with the richest fifth of households set to lose £1,100 on average, while the poorest 20 per cent gain an average of £700. Taxes up not down. The Autumn Statement’s £20 billion of tax cuts compare to around £90 billion of tax rises (including higher Corporation Tax) already announced this parliament. So despite the tax-cutting rhetoric, taxes are rising by 4.5 per cent of GDP between 2019-20 and 2028-29, equivalent to £4,300 per household. Belated boost for renters in South London, Manchester and Bristol. The welcome decision to re-peg Local Housing Allowance at the 30th percentile of rents in 2024-25 will benefit around 1.6 million renters, with the biggest boosts going to those living in areas where rents have soared – notably Inner South London (+£50 a week), Inner Greater Manchester (+£41) and Bristol (+£40). Implausibly large post-election spending cuts. By not fully accounting for higher inflation in public services spending plans, unprotected departments such as justice, local government and the Home Office are set to see their per capita day-to-day budgets fall by 14 per cent – equivalent to a real-terms cut of £17 billion – between 2022-23 and 2027-28. Real wages set for a 20-year stagnation… While nominal wages are growing faster than previously forecast, this simply reflects the reality of higher inflation. Real wage growth remains muted, and real average earnings are not forecast to return to their 2008 peak until 2028 – a totally unprecedented 20-year pay stagnation. …delivering a grim new record on living standards. With just a year to go until the next General Election, this parliament is on track to be the first in which real household disposable incomes have fallen (by 3.1 per cent from December 2019 to January 2025). Households will on average be £1,9000 poorer at the end of this parliament than at its start. Torsten Bell, Chief Executive of the Resolution Foundation, said: “Jeremy Hunt yesterday got his pre-election giveaways in early, with an Autumn Statement offering tax cuts today, at the price of implausible spending cuts tomorrow. Well-targeted specifics, addressing problems such as our tax system’s bias against working-age earnings or benefit system’s failure to keep pace with fast rising rents, were juxtaposed with far less well-designed big picture fiscal choices. Tax cutting rhetoric clashed with tax rising reality, and positive steps to encourage business investment combined with a growth sapping hit to public investment. “Ultimately this reflects the pressures, not only of an upcoming election, but of governing a sicker, older, slower growing Britain, amidst an era of far higher interest rates. “That might be difficult for policy makers, but it’s a disaster for households whose wages are stuck in a totally unprecedented 20 year stagnation. This parliament is set to achieve a truly grim new record: the first in which household incomes will be lower at its end than its beginning.”
