Disposable income to drop by 7% over next two years in ‘staggering’ fall
Rising prices eroding real wages has been blamed for the drop in living standards.
People’s real household disposable income is set to fall by more than 7% over the next two years.
This is the biggest fall on record, taking British incomes down to the same level as they were in 2013.
Director of the Institute for Fiscal Studies (IFS), Paul Johnson, called the drop in money Brits have to spend after paying taxes ‘simply staggering’.
The bleak figure comes from the Office for Budget Responsibility’s (OBR) report mentioned in the chancellor Jeremy Hunt’s autumn statement today.
The public body, which gives independent analysis of the UK’s finances, said the UK is now in recession.
Its report read: ‘Rising prices erode real wages and reduce living standards by 7% in total over the two financial years to 2023-24 (wiping out the previous eight years’ growth), despite over £100 billion of additional Government support.
‘The squeeze on real incomes, rise in interest rates, and fall in house prices all weigh on consumption and investment, tipping the economy into a recession lasting just over a year from the third quarter of 2022, with a peak-to-trough fall in GDP of 2%.’
But, when Mr Hunt addressed Parliament today, he said the OBR confirmed ‘because of our plans, the recession is shallower, and inflation is reduced’.
He added: ‘Unemployment is also lower with about 70,000 jobs protected as a result of our decisions today.
‘Then, once growth returns, we increase the pace of consolidation to get debt falling.
‘This further reduces the pressure on the Bank to raise interest rates because as Conservatives we do not leave our debts to the next generation.’
The chancellor said his main priorities within the budget are ‘stability, growth and public services.’
Major announcements include an increase to the NHS budget by an extra £3.3 billion in each of the next two years.
Electric vehicles will no longer be exempt from Vehicle Excise Duty from April 2025 and Kwasi Kwarteng’s stamp duty tax cut will be reversed in 2025.
What has Jeremy Hunt announced in the Budget?
Growth and recession
- The OBR has said that the UK is 'now in recession', Mr Hunt said, but he added 'overall this year, the economy is still forecast to grow by 4.2%'.
- Mr Hunt promised his autumn statement will lead to a 'shallower downturn' in the UK's finances.
- Underlying debt as a percentage of GDP is expected to fall from a peak of 97.6% of GDP in 2025-26 to 97.3% in 2027-28.
- Mr Hunt announced two new fiscal rules, that underlying debt must fall as a percentage of GDP by the fifth year of a rolling five-year period, and that public sector borrowing, over the same period, must be below 3% of GDP.
- Pay and support with the cost of living
- The energy price guarantee scheme will increase from £2,500 for the average household to £3,000 for 12 months from April, Mr Hunt confirmed.
- The Government will introduce additional cost-of-living payments for the 'most vulnerable', with £900 for those on benefits, £300 for pensioners and £150 for those on a disability benefit.
- The Chancellor said he will cap the increase in social rents at a maximum of 7% in 2023/24, saving the average tenant £200 next year.
- Mr Hunt has accepted a recommendation to increase the national living wage by 9.7%, making the hourly rate £10.42 from April 2023.
Inflation
- The Chancellor told MPs the Office of Budget Responsibility (OBR) has confirmed 'global factors' are the 'primary cause' of inflation.
- The OBR forecasts the UK's inflation rate to be 9.1% this year and 7.4% next year.
- He said the autumn statement will cause inflation to 'fall sharply from the middle of next year'.
- The Chancellor confirmed the Bank of England's remit will not be changed and it has his 'wholehearted support in its mission to defeat inflation'.
Tax
- Mr Hunt reduced the threshold at which the top rate of income tax is paid from £150,000 to £125,140, but said he was not raising headline rates of taxation. He said those earning £150,000 or more will pay just over £1,200 more a year.
- Mr Hunt said he would protect the increases in departmental budgets already set out in cash terms, before growing resource spending at 1% a year in real terms over the next three years. He said public spending would grow 'slower than the economy'.
- Electric vehicles will no longer be exempt from Vehicle Excise Duty from April 2025 to make the motoring tax system 'fairer'.
- Mr Hunt increased the windfall tax on oil and gas giants from 25% to 35% and imposed a 45% levy on electricity generators to raise an estimated £14 billion next year.
- On business rates, Mr Hunt said the Government will proceed with the revaluation of business properties from April 2023.
- The stamp duty cuts announced in the mini-budget will remain in place but only until March 31 2025.
- Mr Hunt told the House the OBR expects housing activity to slow over the next two years.
- On business taxes, the Chancellor said he had decided to freeze the Employers National Insurance Contributions threshold until April 2028.
- The Chancellor rejected calls to put VAT on independent school fees.
Health
- Mr Hunt said he will increase the NHS budget by an extra £3.3 billion in each of the next two years.
- Mr Hunt said the NHS would publish an independently-verified plan for the number of doctors, nurses and other professionals needed in five, 10 and 15 years' time.
- He allocated for adult social care additional grant funding of £1 billion next year and £1.7 billion the year after.
Spending and benefits
- Mr Hunt said 'with just under half of the £55 billion consolidation coming from tax, and just over half from spending, this is a balanced plan for stability'.
- The Chancellor said he will invest an extra £2.3 billion per year in schools over the next two years.
- It will 'not be possible' to return to the 0.7% overseas aid target 'until the fiscal situation allows', Mr Hunt said.
- He said he will maintain the defence budget at at least 2% of GDP.
- Mr Hunt said he would move back the managed transition of people from employment and support allowance onto Universal Credit to 2028.
- The implementation of the Dilnot reforms will be delayed for two years, Mr Hunt confirmed, announcing an increase in funding for the social care sector of up to £2.8 billion next year and £4.7 billion the following year.
- The Barnett consequentials of the autumn statement mean an extra £1.5bn for the Scottish Government, £1.2bn for the Welsh Government, and £650m for the Northern Ireland Executive.
- The Chancellor said he would not cut 'a penny' from Government capital budgets over the next two years, and would then maintain them at that level for the next three years.
- Working age and disability benefits will increase in line with inflation, with a rise of 10.1%, costing £11 billion.
- State pensions will increase in line with inflation in April, as Mr Hunt announced the 'biggest ever cash increase in the state pension'.
Climate and energy
- Mr Hunt said 'we remain fully committed to the historic Glasgow Climate Pact agreed at COP26 including a 68% reduction in our emissions by 2030'.
- The Chancellor said he would add an extra £6 billion of investment in energy efficiency from 2025 to help meet a new ambition of reducing energy consumption from buildings and industry by 15% by 2030.
- The Government will proceed with the new nuclear plant at Sizewell C.
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