UK
TAX CUTS CREATE AUSTERITYFamilies £1,900 worse off by the next election despite Hunt’s giveaways
Szu Ping Chan
Thu, 23 November 2023
Hunt
People will be £1,900 poorer by the next election despite Jeremy Hunt’s tax cuts, the Resolution Foundation has said.
This parliament is on track to be the first in which real household disposable incomes have fallen, the think tank said, despite a cut to National Insurance in the Autumn Statement and other giveaways from the Chancellor.
The Resolution Foundation said real household disposable incomes are on track to fall by 3.1pc between December 2019 and January 2025, equating to an average drop of £1,900. It means families will feel poorer at the next election than they did when the country last went to the polls.
Torsten Bell, chief executive of the Resolution Foundation, called it “a truly grim new record.”
Real incomes are falling as families feel the impact of stealth tax raids, previous tax rises and more than a decade of stagnating incomes.
Households face paying £4,300 more tax by the end of this decade compared to 2019, the Resolution Foundation said, as millions more people are dragged into higher tax brackets by inflation as their wages rise.
Despite nominal increases in pay packets, buying power is in fact still below where it was in 2008 and real average earnings are not forecast to return to their peak until 2028.
It signifies two lost decades for British workers. Mr Bell said it was “a totally unprecedented 20 year stagnation”.
The tax burden is expected to keep climbing every year for the next five years to a new record of almost 38pc of GDP by 2029, well above pre-pandemic levels of 33.1pc
The increase comes despite the Chancellor’s pledge to cut National Insurance from 12pc to 10pc, saving a worker on the average salary £450 a year.
The Office for Budget Responsibility (OBR) has predicted that seven million more workers will be dragged into higher income tax bands by 2028, including 3.4 million more who will be paying either the higher or top rate of income tax before the end of the decade.
Mr Bell said the Chancellor’s “tax cutting rhetoric clashed with tax rising reality”.
He said: “Ultimately this reflects the pressures, not only of an upcoming election, but of governing a sicker, older, slower growing Britain, amidst an era of far higher interest rates.”
Around 40pc of gains from the tax and benefit measures announced in the Autumn Statement – including boosts to Local Housing Allowance and changes to the Work Capability Assessment – will benefit the richest fifth of the population, according to the Resolution Foundation.
The top 20pc of earners will gain £1,000 on average, five times the gains seen for the bottom fifth.
However, the highest earners still lose most from decisions taken over this parliament. Taken together, the richest fifth of households are set to lose £1,100 on average as a result of all the tax and benefit measures announced since 2019. The poorest 20 per cent gain an average of £700.
Richard Hughes, the chairman of the OBR, on Wednesday warned that economic growth was likely to remain anaemic in the short term, with the UK suffering an “unpleasant” combination of high interest rates and low growth that made the outlook for the UK economy worse compared with other rich economies.
He said: “We have a worrying configuration of American-style interest rates, but European-style growth. And so the dynamics are looking particularly unpleasant for us as a G7 member because we’ve got relatively high interest rates, but we haven’t got the American GDP growth to go with it.”
Szu Ping Chan
Thu, 23 November 2023
Hunt
People will be £1,900 poorer by the next election despite Jeremy Hunt’s tax cuts, the Resolution Foundation has said.
This parliament is on track to be the first in which real household disposable incomes have fallen, the think tank said, despite a cut to National Insurance in the Autumn Statement and other giveaways from the Chancellor.
The Resolution Foundation said real household disposable incomes are on track to fall by 3.1pc between December 2019 and January 2025, equating to an average drop of £1,900. It means families will feel poorer at the next election than they did when the country last went to the polls.
Torsten Bell, chief executive of the Resolution Foundation, called it “a truly grim new record.”
Real incomes are falling as families feel the impact of stealth tax raids, previous tax rises and more than a decade of stagnating incomes.
Households face paying £4,300 more tax by the end of this decade compared to 2019, the Resolution Foundation said, as millions more people are dragged into higher tax brackets by inflation as their wages rise.
Despite nominal increases in pay packets, buying power is in fact still below where it was in 2008 and real average earnings are not forecast to return to their peak until 2028.
It signifies two lost decades for British workers. Mr Bell said it was “a totally unprecedented 20 year stagnation”.
The tax burden is expected to keep climbing every year for the next five years to a new record of almost 38pc of GDP by 2029, well above pre-pandemic levels of 33.1pc
The increase comes despite the Chancellor’s pledge to cut National Insurance from 12pc to 10pc, saving a worker on the average salary £450 a year.
The Office for Budget Responsibility (OBR) has predicted that seven million more workers will be dragged into higher income tax bands by 2028, including 3.4 million more who will be paying either the higher or top rate of income tax before the end of the decade.
Mr Bell said the Chancellor’s “tax cutting rhetoric clashed with tax rising reality”.
He said: “Ultimately this reflects the pressures, not only of an upcoming election, but of governing a sicker, older, slower growing Britain, amidst an era of far higher interest rates.”
Around 40pc of gains from the tax and benefit measures announced in the Autumn Statement – including boosts to Local Housing Allowance and changes to the Work Capability Assessment – will benefit the richest fifth of the population, according to the Resolution Foundation.
The top 20pc of earners will gain £1,000 on average, five times the gains seen for the bottom fifth.
However, the highest earners still lose most from decisions taken over this parliament. Taken together, the richest fifth of households are set to lose £1,100 on average as a result of all the tax and benefit measures announced since 2019. The poorest 20 per cent gain an average of £700.
Richard Hughes, the chairman of the OBR, on Wednesday warned that economic growth was likely to remain anaemic in the short term, with the UK suffering an “unpleasant” combination of high interest rates and low growth that made the outlook for the UK economy worse compared with other rich economies.
He said: “We have a worrying configuration of American-style interest rates, but European-style growth. And so the dynamics are looking particularly unpleasant for us as a G7 member because we’ve got relatively high interest rates, but we haven’t got the American GDP growth to go with it.”
Millions of pensioners paying more income tax now than when Tories took power
Szu Ping Chan
Thu, 23 November 2023
jeremy hunt
Millions of pensioners are now paying more income tax than when the Tories took power 13 years ago, according to the Institute for Fiscal Studies (IFS).
The think tank said 8.5 million people over the age of 65 were now paying tax on their income, up from roughly 4.9 million in 2010.
This has been fuelled by the phenomenon of fiscal drag, which allows the Exchequer to rake in more tax without increasing headline rates, as well as a jump in George Osborne’s “granny tax”, said the IFS.
The levy was introduced in 2012 when the former chancellor started phasing out a century-old relief introduced by Winston Churchill that meant pensioners started paying tax at a higher income level than workers.
Estimates from the IFS show that a pensioner earning £25,000 a year through work or pension income now pays about £400 more in income tax than they did when the Conservatives and Liberal Democrats came to power in 2010.
This compares with a worker earning the same amount who will pay “about £1,200 less in income tax and National Insurance (NI)”, the think tank said.
While the number of people over 65 has also grown since 2010 from 9.9 million to 12.4 million today, Paul Johnson, director of the IFS, said the share of pensioners paying income tax had also grown.
He said: “Back in 2010 around half of pensioners paid any income tax. Now more than two-thirds do.”
Rishi Sunak’s decision to increase NI thresholds for employees, and for the self-employed in 2022, was made even as millions more were dragged into higher tax bands because of a six-year freeze in income tax thresholds.
Pensioners do not pay NI and will not benefit from the 2pc cut in the main contribution rate announced by Jeremy Hunt in the Autumn Statement.
Tom Waters, associate director at the IFS, said: “Back in 2010, those over the age of 65 had an income tax personal allowance about 50pc larger than those of working age.
“Over the first half of the 2010s the Government got rid of this higher allowance, and – together with the income tax freeze we are currently in the midst of – this has led to pensioners’ personal allowances falling in real terms.
“Combined with rising pensioner incomes this means that we have seen a substantial increase in the fraction of pensioners subject to tax, from 50pc to 68pc.
“Another four years of tax freezes and the pensions triple lock all but guarantees that we will see that figure rise yet further.”
Official forecasts show state pensioners with no other income face paying income tax from 2028 as high inflation combined with the freeze in tax bands is set to push them above the £12,570 basic-rate threshold.
Under the triple lock, pensions rise in line with rising prices or earnings, or by 2.5pc each year. The OBR has recently upgraded its forecasts for inflation and pay growth.
Applying these projections to the full new state pension indicates that payments will rise from just over £11,500 next year to around £12,800 in 2028.
If the basic-rate tax threshold remains frozen, it means those on the standard state pension – with no other private income of their own – face being forced to pay income tax.
However, Mr Johnson described the levelling of incomes enjoyed by workers and pensions as an “unequivocally a good thing”.
He said: “In 2010 the employee would have paid about £2,750 more than the pensioner, they will now pay £1,250 more.”
Real incomes are falling as families feel the impact of stealth tax raids, previous tax rises and more than a decade of stagnating incomes.
James Smith at the Resolution Foundation said: “If we look at living standards over the parliament as a whole, you basically see that the combination of high inflation plus these tax rises is a really toxic one or living standards.”
He called the fall in living standards a “really difficult backdrop going into an election year”.
Szu Ping Chan
Thu, 23 November 2023
jeremy hunt
Millions of pensioners are now paying more income tax than when the Tories took power 13 years ago, according to the Institute for Fiscal Studies (IFS).
The think tank said 8.5 million people over the age of 65 were now paying tax on their income, up from roughly 4.9 million in 2010.
This has been fuelled by the phenomenon of fiscal drag, which allows the Exchequer to rake in more tax without increasing headline rates, as well as a jump in George Osborne’s “granny tax”, said the IFS.
The levy was introduced in 2012 when the former chancellor started phasing out a century-old relief introduced by Winston Churchill that meant pensioners started paying tax at a higher income level than workers.
Estimates from the IFS show that a pensioner earning £25,000 a year through work or pension income now pays about £400 more in income tax than they did when the Conservatives and Liberal Democrats came to power in 2010.
This compares with a worker earning the same amount who will pay “about £1,200 less in income tax and National Insurance (NI)”, the think tank said.
While the number of people over 65 has also grown since 2010 from 9.9 million to 12.4 million today, Paul Johnson, director of the IFS, said the share of pensioners paying income tax had also grown.
He said: “Back in 2010 around half of pensioners paid any income tax. Now more than two-thirds do.”
Rishi Sunak’s decision to increase NI thresholds for employees, and for the self-employed in 2022, was made even as millions more were dragged into higher tax bands because of a six-year freeze in income tax thresholds.
Pensioners do not pay NI and will not benefit from the 2pc cut in the main contribution rate announced by Jeremy Hunt in the Autumn Statement.
Tom Waters, associate director at the IFS, said: “Back in 2010, those over the age of 65 had an income tax personal allowance about 50pc larger than those of working age.
“Over the first half of the 2010s the Government got rid of this higher allowance, and – together with the income tax freeze we are currently in the midst of – this has led to pensioners’ personal allowances falling in real terms.
“Combined with rising pensioner incomes this means that we have seen a substantial increase in the fraction of pensioners subject to tax, from 50pc to 68pc.
“Another four years of tax freezes and the pensions triple lock all but guarantees that we will see that figure rise yet further.”
Official forecasts show state pensioners with no other income face paying income tax from 2028 as high inflation combined with the freeze in tax bands is set to push them above the £12,570 basic-rate threshold.
Under the triple lock, pensions rise in line with rising prices or earnings, or by 2.5pc each year. The OBR has recently upgraded its forecasts for inflation and pay growth.
Applying these projections to the full new state pension indicates that payments will rise from just over £11,500 next year to around £12,800 in 2028.
If the basic-rate tax threshold remains frozen, it means those on the standard state pension – with no other private income of their own – face being forced to pay income tax.
However, Mr Johnson described the levelling of incomes enjoyed by workers and pensions as an “unequivocally a good thing”.
He said: “In 2010 the employee would have paid about £2,750 more than the pensioner, they will now pay £1,250 more.”
Real incomes are falling as families feel the impact of stealth tax raids, previous tax rises and more than a decade of stagnating incomes.
James Smith at the Resolution Foundation said: “If we look at living standards over the parliament as a whole, you basically see that the combination of high inflation plus these tax rises is a really toxic one or living standards.”
He called the fall in living standards a “really difficult backdrop going into an election year”.
Hunt’s Tax Cuts to Squeeze UK Public Services Beyond the Election
Philip Aldrick and Joe Mayes
Thu, November 23, 2023
(Bloomberg) -- Chancellor of the Exchequer Jeremy Hunt will redouble the squeeze on Britain’s crumbling public services to pay for £21 billion ($26.2 billion) of tax cuts designed to boost growth and revive the Conservative Party’s electoral fortunes.
Government departments face a further £19 billion of cuts after the election, expected next year, on top of spending plans that the Resolution Foundation research group had already branded “implausible.” It’s austerity that compares with the measures put in place by Chancellor George Osborne in the last decade.
The Institute for Fiscal Studies said “there’s a material risk that those plans prove undeliverable.” Even the Office for Budget Responsibility, the government’s fiscal watchdog, said the program is severe enough that it’s “a significant risk to our forecast.”
Hunt outlined the cuts in his Autumn Statement as he unveiled a package of growth policies to pull the UK out of years of stagnation and draw a clear dividing line with the opposition Labour Party.
“Our choice is not big government — high spending and high tax — because we know that leads to less growth, not more,” Hunt said in an attempted dig at his Labour opponents. “Instead we reduce debt, cut taxes and reward work.”
Speaking on Sky News on Thursday, Hunt said the government will “show discipline” on public spending and acknowledged it will not rise “as fast as some people would like, but that is happening because I’m choosing to cut taxes, mainly for business.”
Hunt’s key growth policies were a a £10 billion a year reduction in national insurance contributions paid by 27 million workers, reducing the take by 2 points from 12%. A break for corporate investment will be made permanent, costing £11 billion, in a move that was widely applauded by business. Labour signaled it’s likely to keep both plans.
Despite saying the measures amounted to “the biggest package of tax cuts to be implemented since the 1980s,” the tax burden remained at a post-World War II high of 37.7% of GDP. That’s due to pre-existing policies, which will freeze income tax thresholds until 2028.
“The cuts are dwarfed by £45 billion of already announced threshold freezes,” Torsten Bell, chief executive of the Resolution Foundation, said. Had Hunt not cut taxes, the tax burden would have hit 38.4%, the OBR said.
For all Hunt’s talk of growth, it was not a thriving economy but inflation that came to his rescue. While Prime Minister Rishi Sunak has been trying to defeat inflation all year, rising prices boosted tax revenue to the Treasury, giving Hunt room for maneuver.
Trend growth, which determines living standards, was downgraded by a total of 2.4% between 2023 and 2027 but the cash size of the economy, which includes inflation effects, was upgraded by 5.5%. “Taxes aren’t being cut because inflation has fallen,” Bell said. “They’re being cut because inflation has been higher than expected.”
The result was £30 billion of headroom against his fiscal rule that debt must be falling as a share of GDP in the fifth year of the forecast. Hunt used all but £13 billion of it but half is expected to be used to scrap fuel duty in March, leaving him with the same £6.5 billion of fiscal space at the budget he had eight months ago.
Alongside full expensing and the NICs cuts, Hunt hopes to lift the economy by leveraging private capital through pension fund reforms, clearing obstacles in the planning system and ensuring work pays by getting tough on benefits while lifting the minimum wage.
The OBR judged the package will claw back 0.3% of lost growth by 2028. Full-expensing lifts business investment by £20 billion at the end of the forecast, it said, while the NICs cut and benefits reforms boost labor supply by 78,000.
The quest for stronger growth and low taxes unites both parties. Hunt’s plan to turbo-charge the economy and give households some of their money back is little different to his opposite number, Labour’s shadow chancellor Rachel Reeves.
She has attacked the 25 tax rises since Sunak became chancellor in 2021 and accused Hunt of “picking the pockets of working people.” She told reporters earlier this month: “It is because this is a government of low growth that it is a government of high taxes.”
Hunt left little doubt that the Autumn Statement teed the Conservatives up for an election in 2024, but he faces a difficult backdrop.
Inflation has more than halved, meeting Sunak’s target for the year, but remains the highest in the Group of Seven nations. The OBR warned consumer prices will be stickier than thought and not return to the Bank of England’s 2% target until early 2025.
Households are in the midst of the steepest fall in living standards since the 1950s, the OBR said. While the outlook has improved since March, real household disposable income is on track to have fallen 3.5% between 2020 and 2025.
And markets also raised concerns about the glut of gilts to pay for the £93 billion six-year stimulus. The yield on 30-year government bonds rose 10 basis points as traders adjusted to the bigger-than-expected debt issuance plans.
Even so, Hunt has some short-term giveaways for the election year, including £2.65 billion of business rates relief for retail and hospitality firms, £270 million for regional investment in 2024, and a one year freeze in alcohol duties.
For poorer households there was help, too. Benefits will rise 6.7% to provide “vital support for those on the very lowest incomes,” Hunt said. The state pension will increase 8.5% and the minimum wage is rising 10%.
The choice that Hunt mapped out was low-tax, private sector-led growth with the Tories or big-state interventionism with Labour and its £28 billion green investment plan.
Labour’s Reeves said households are paying the price of for 13 years of Tory rule. “Nothing that has been announced today will remotely compensate rising mortgages, rising taxes eating into wages, inflation high with prices still going up in the shops, public services on their knees, and too many families struggling to make ends meet,” she said in Parliament.
--With assistance from Andrew Atkinson and Greg Ritchie.
Bloomberg Businessweek
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