Families face £3k tax hit – true cost of Rishi’s spending laid bare after budget
Budget 2021: Sunak labelled 'weak Chancellor' by Mike Parry
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Wednesday’s Budget, alongside an array of measures applied since Boris Johnson took office, has resulted in UK households facing a £3,000 tax hit, analysis by Resolution Foundation has shown following Chancellor Rishi Sunak’s announcements this week.
The policies announced by Mr Sunak “cut taxes for millions of the lowest-paid”, boosting their incomes by 2.8 percent.
This was achieved via changes to universal credit, higher council tax, income tax and national insurance – and alcohol and fuel duties.
However, middle-income and richer households aren’t as well off. The former will suffer a two percent hit; the latter, 3.1 percent by 2025.
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The think tank’s analysis of the Budget and Spending Review 2021 paints a worrying picture of post-Covid family finances – one not fully aligned with the “high-wage” or “lower-tax” economy envisaged by the Government.
Torsten Bell, chief executive of the Foundation, said: “The chancellor yesterday got his first chance to set out what the UK’s post-pandemic economy might look like by the mid-2020s.”
Claiming that it wasn’t what Boris Johnson promised last month, or what Mr Sunak announced as his goal on Wednesday, he added: “Instead, the chancellor has set out plans for a new high-tax, big-state economy.”
Inflation, growth and public spending are higher than previously expected.
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Alongside the tax rises announced earlier this year, it all points to steeper costs for households, the report suggests.
It also warns that, by 2026-28, tax as a share of the economy will be at its highest level since 1950.
Mr Bell said: “Higher taxes aren’t a surprise, given the UK is combining fiscal conservatism with an ageing society and a slow-growing economy.
“But it is the end of low-tax conservatism, with the tax take rising by £3,000 per household by the middle of this decade.”
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The last decade has also been the weakest since the 1930s for pay growth, with wages in the wider population set to fall in 2022 after inflation, meaning the Government’s spending spree will unlikely be reflected in pockets. This could lead to a “flat recovery for household living standards”.
Mr Bell told BBC Breakfast: “The chancellor got some really good news for the public finances yesterday.”
Thanks to the economy “doing slightly better than we all thought six months ago”, there will be “lower borrowing”, he said, adding: “But good news for public finances wasn’t good news for household finances.”
Real wages will have only increased by 2.4 percent in the 16-year period from 2008 to 2024. From 1992 to 2008, in comparison, they grew by 38 percent.
Mr Bell added: “That’s because higher inflation that actually helped the chancellor with his borrowing figures is obviously hurting household budgets.
“That’s why the Office for Budget Responsibility expects household incomes and wages to actually not grow at all in the next year.”
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