Jeremy Hunt has been accused of “picking the pockets of working people” after announcing billions worth of tax hikes in his Autumn Statement – as Britons face the biggest fall in disposable income on record.
The Office for Budget Responsibility (OBR), which checks the government’s fiscal plans and provides economic forecasts to go alongside them, has given a bleak assessment of the UK’s economic outlook.
The country is now in a recession, with more than half a million people forecast to lose their jobs while living standards crash as a result of rising prices.
The spiralling cost of living will erode real wages and reduce living standards by 7% in total over the next two years, the OBR’s assessment said, wiping out the previous eight years’ growth, despite over £100bn of additional government support.
Paul Johnson, the head of the Institute for Fiscal Studies, said the figures were “simply staggering”.
“Simply staggering numbers in OBR report,” he said on Twitter.
“Real Household Disposable Income per person to fall more than 7% over next two years. Biggest fall on record. Taking incomes down to 2013 levels.”
In his Autumn statement, Mr Hunt set out a package of around £30bn of spending cuts and £24bn in tax rises over the next five years.
The measures will see around 55% of households worse off, according to the Treasury’s own analysis.
Among the “difficult decisions” Mr Hunt said he was forced to make to curb inflation, he announced the cap on average household energy bills would increase from £2,500 to £3,000 from April.
But Mr Hunt said “this still means an average of £500 support for every household”, while there would also be additional cost-of-living payments for people on means-tested benefits, pensioner households and those on disability benefits.
In addition to rising energy bills, millions more Britons will pay more tax due to a freeze on income tax personal allowance, national insurance and inheritance tax thresholds.
Sometimes known as a “stealth tax”, the measure will drag more people into higher tax brackets, so is effectively a tax rise.
The Federation of Small Businesses (FSB) slammed the move, calling the budget “high on stealth-creation and low on wealth-creation”.
Some of the other main announcements from the Autumn Statement include:
- The higher rate of tax threshold reduced to £125,140
- Benefits and state pension to rise in line with inflation
- Windfall tax extended until March 2028 and increased to 35%
- Electric cars no longer exempt from car tax from April 2025
- An extra £2.4bn per year on schools
- NHS to get £3.3bn and adult social care £1bn next year and £1.7bn in 2024
- Government spending will continue to increase in real terms every year for the next five years, but at a slower rate than previously planned.
- Freeze on income tax personal allowance, national insurance and inheritance tax thresholds
A former Labour economist and policymaker, Torsten Bell, who was in the Treasury during the last financial crisis, has said the autumn statement could have been announced by the opposition.
But Labour branded it an “invoice to the economic carnage the government has created”.
Hunt a ‘scrooge who has not cancelled Bankers’ Christmas’
Shadow chancellor Rachel Reeves questioned the fairness of not abolishing nom-dom status, which she called a “tax-free income for millionaires”, and of lifting the cap on bankers’ bonuses while “urging wage restraint for everybody else”.
“He’s asking working people to take the hit with less money in their pockets in the run-up to Christmas, but also for years to come,” she said.
“But if you’re a banker, a non-dom, or a private equity manager, don’t worry – Scrooge hasn’t cancelled your Christmas.
“In the last hour, the Conservatives have picked the pockets of purses and wallets of the entire country as the chancellor has deployed a raft of stealth taxes taking billions of pounds from ordinary working people.
“The country is sick of being ripped off by the Tories, we want our money back.”
Mr Hunt sought to blame Russia’s invasion of Ukraine for the “global energy crisis, a global inflation crisis and a global economic crisis” and said “we have risen to bigger challenges before”.
“We aren’t immune to these headwinds, but with this plan for stability, growth and public services, we will face into the storm,” he said.
But Green Party MP Caroline Lucas said the chancellor did not acknowledge the “elephant in the room”, which she said was “the economic catastrophe of Brexit”.
SNP Treasury spokeswoman Alison Thewlis also told MPs: “This is a UK so weak that no one would wish to join it. Scotland cannot be forced to stay in broke, broken, Brexit Britain.”
The OBR said in its forecast that the withdrawal from the EU had a “significant adverse impact” on UK trade, while a former Bank of England economist said this week that it had “permanently damaged” the economy and was the ultimate reason for many of the austerity measures announced today.
The assessments from the OBR have been long awaited after the official forecasting body was not used during the tax-slashing September mini-budget, which spooked the markets, pushed up the cost of borrowing, sent the pound falling and forced the Bank of England to intervene to stop pension funds from collapsing.
Mr Hunt’s package is in stark contrast to his predecessor’s ill-fated plan, which analysis released on Monday found cost the UK £30bn – doubling the sum the Treasury said would have to be raised to plug the “black hole”.
But the pound has still dropped sharply against the US dollar as financial markets fret over warnings the UK is already in recession.
The Lib Dems blamed the problems on government incompetence, calling today’s announcement a “cost of chaos budget (that) will cause untold pain for everyone”.
But some of the measures announced have been welcomed.
Martin Lewis, the money saving expert, said: “I am very pleased that both benefits and the state pension are being increased by the 10.1% September inflation rate.
“It only happens from next April, and it will still be hard for many, but if it was less than this it would’ve been devastating.”