The spring statement, worsening economy and Donald Trump’s latest trade tariffs on cars has led to renewed speculation about more tax rises to come and a further hit to hard-up households
Chancellor Rachel Reeves’ spring statement was anything but a non-event – as some had speculated in advance.
Instead, it was packed with announcements – mostly doom-laden yet with some upsides – that will have implications for millions of people in the country. Experts have been busy poring over the documents in the hours since, in a bid to examine just what it will mean for households, businesses and the wider country. Here is a summary of some the conclusions.
Institute for Fiscal Studies
The mostly hotly anticipated verdict in the aftermath of any Budget – or spring statement in this case – comes from the IFS. Its number crunchers have been flat out going through the details to conclude just what impact the Chancellor’s flurry of announcements mean, and what is buried in the detail.
One of its over-riding conclusions is she has left herself precious little wiggle room, which will also inevitably lead to mounting speculation of tax rises and/spending cuts in her next scheduled fiscal event, the Autumn Budget.
IFS director Paul Johnson said: “There is a good chance that economic and fiscal forecasts will deteriorate significantly between now and an Autumn Budget. If so, she will need to come back for more; which will likely mean raising taxes even further.”
Just what those tax rises are is likely to be hotly debated, although Mr Johnson said there was likely to be a focus on a raid on pensions, a wealth tax on the richest, and another hike to capital gains tax.
“I mention those not to commend them, far from it, but to exemplify the kinds of taxes regarding which mere speculation about increases can cause economic harm,” he said. Mr Johnson warned, however, that speculation about reform of taxes on pensions before the Autumn Budget prompted some people to withdraw money from their retirement pots in advance, for no reason. “It looks like a nice juicy place to go for quite a lot of money,” he said.
Another way the IFS suggested the Chancellor could boost the Treasury’s coffers would be to extend the freeze on income tax and national insurance thresholds yet again. Doing so until the end of the decade could rake in an extra £10billion, it said. “It seems to have very little political downsides,” Mr Johnson remarked.
There is pressure on the government to impose some sort of wealth tax, although Mr Johnson said: “That is not going to get her any definite amount of money any time soon .”
Resolution Foundation
The think tank’s analysis is closely studied, given its aim to improve the standard of living of low-to middle-income families. It’s conclusion? That hard-up households are forecast to become £500 a year poorer over the next five years as a result of the spring statement.
An estimated 250,000 more people, including 50,000 children, will be left in relative poverty after housing costs by the end of the decade as a result of the Government’s squeeze on welfare, according to the government’s own impact assessment. The changes will affect about three million families on incapacity benefits, while 800,000 claimants will have reduced personal independence payments (PIP).
Initial analysis from the Resolution Foundation said the combination of a weak economic outlook and benefit cuts that fall disproportionately on lower-income families means that average income for the poorest half of households is on track to fall by £500 on average over the next five years.
Ruth Curtice, chief executive of the Resolution Foundation, said: “The outlook for living standards remains bleak. Britain’s poor economic performance, combined with policies that bear down hardest on those on modest incomes, mean that 10 million working-age households across the bottom half of the income distribution are on track to get £500 a year poorer over the course of the Parliament.”
Joseph Rowntree Foundation
The charity conducts and funds research aimed at solving poverty in the UK.
Its assessment? That living standards are set to fall across the rest of the decade, with the average family £750 worse off in real terms by April 2029 compared to now. That contrasts sharply with the Office for Budget Responsibility that predict households will be £500 better off by the end of the Parliament.
According to the JRF, families on the lowest incomes are forecast to see their incomes fall around twice as fast as middle and higher income families. And low-income families are more likely to be hit by higher housing costs, as well as benefit changes and job losses, it says. This includes the impact of the disability benefit cuts so far costed by the OBR.
Why the big difference between its £750 worse off and the OBR’s £500 better off? It says the OBR’s measure doesn’t take into account housing costs, whereas the JRF measure does.