UK on track for ‘disastrous decade’ of income stagnation newshub

UK on track for ‘disastrous decade’ of income stagnation

Taxes as a share of GDP are on track to reach a 70-year high but public services are being cut, says thinktank

The UK remains on track for a “disastrous decade” of stagnant incomes and high taxes, despite cuts to public services, the Resolution Foundation said in its analysis of the budget on Wednesday.

The thinktank, whose stated aim is to improve the standard of living for low- and middle-income families, said typical household disposable incomes were on track to be lower by the end of the forecast in 2027-28 than they were before the pandemic, when inflation is taken into account.

While the chancellor had announced an “impressively broad suite of policies” to encourage more people into work, he was unable to change the course of declining living standards, the Resolution Foundation 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,” the report said.

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%”, it added.

It said taxes as a share of GDP were 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.

The rise in taxes will still leave the chancellor with little room for manoeuvre at the end of the Office for Budget Responsibility’s five-year forecast period, mainly because a short-term lift in GDP growth will fade, leaving the overall tax rate lower.

“If even the slow growth of the past decade had continued, incomes would still be £1,800 higher than currently projected for 2027-28,” the thinktank said.

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.

“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.