Household incomes are on course to fall for the first time over the course of a parliament despite Jeremy Hunt’s national insurance cuts, the Resolution Foundation thinktank has said in its assessment of the chancellor’s budget.
Amid almost two decades of falling real wages, the foundation said that after adjusting for inflation, household disposable incomes were poised to fall by 0.9% between 2019 and the end of 2024 – “the first parliament in modern history to see a fall in living standards”.
The foundation said Hunt’s likely last budget before the general election, delivered on Wednesday, showed that this has been “a parliament of flatlining growth, falling living standards, and notable redistribution from the old and the rich to the young and the poor”.
Analysis overnight by the foundation showed that a long period when tax policy was skewed to supporting older generations had come to an end, with Hunt targeting households headed by someone aged between 18 and 45 with the biggest gains.
The report said this group would benefit on average by £590, compared with an average loss of £770 for those aged 66 and over.
Torsten Bell, the chief executive of the Resolution Foundation, said the chancellor had constructed a budget that offered a £9bn tax reduction before a general election expected this year, but with £19bn of tax rises to follow in subsequent years.
In its assessment of the public finances, the Office for Budget Responsibility, the Treasury’s official forecaster, said the chancellor had increased borrowing to pay for most of his tax cuts, using up all of the £13bn reduction in borrowing costs.
In the November autumn statement, Hunt left himself £13bn for contingencies at the end of his five-year plan. In the spring budget this was reduced to £9bn.
Bell said: “A pre-election budget produced another round of pre-election tax cuts. To deliver them, the chancellor has continued to throw fiscal caution to the wind, cutting his fiscal headroom to just a third of the average level seen since 2010. He would fail to meet three out of the four sets of fiscal rules used by his Conservative predecessors since 2010.”
On Thursday, Hunt told BBC Radio 4’s Today programme that he wanted “to make a start on bringing down taxes” but “I’ve never said for one moment that I can bring them right down all in one go.”
The chancellor added that higher taxes were necessary to help pay for the furlough scheme during the pandemic and cost-of-living support to reduce the impact of rising energy prices.
Asked who the “losers” of the budget were, Hunt cited the scrapping of the “non-dom” tax status for wealthy foreigners and the windfall tax on oil and gas companies.
The shadow chancellor, Rachel Reeves, said Hunt needed to explain “where the money is going to come from” to abolish national insurance.
She told BBC Breakfast: “Yesterday, at the end of the budget, the chancellor started floating this idea that he was going to get rid of national insurance altogether.
“Well, that would cost £46bn. And I would like to know where that money is going to come from, because I just wouldn’t make a promise like that without being able to say where the money is going to come from.
“I think it is incumbent on politicians to be honest about the trade-offs that have to be made.”
The Resolution Foundation said there was good news for middle earners and younger people, which meant taxpayers earning below £26,000 or over £60,000 will lose out. The biggest group of losers are pensioners, who face an £8bn collective hit, he added.
Bell said: “Looking at all policy changes announced, this parliament reinforces the sense that the government has reversed course from the approach that dominated during the 2010s. Back then, support was focused on pensioners and takeaways on poorer, younger households. This time it is those aged over 65 and on the highest incomes who are set to lose most.”
Bell was critical of the government’s reliance on cuts to public services over the next five years to fund some of his its tax cuts.
“The £19bn of cuts to unprotected public services after the next election are three-quarters the size of those delivered in the early 2010s. The idea that such cuts can be delivered in the face of already faltering public services is a fiscal fiction,” he said.
