UK facing record low for living standards despite budget tax cuts; house prices rise for fifth month running – business live

The IFS’s Paul Johnson then accuses the government and the opposition of joining in “a conspiracy of silence” in not acknowledging the scale of the choices and trade-offs that will face the country after the election.

They, and we, could be in for a rude awakening when those choices become unavoidable, he fears.

On the politics of the budget, Johnson points out that the non dom changes and the extension of the energy profits levy announced by Jeremy Hunt were Labour policies.

In the “through-the-looking-glass” world of pre-election argy-bargy this will appear to make Labour’s job more difficult. They want to earmark the extra revenue from these taxes to fund some of their spending plans.

A moment’s thought should show this for the nonsense that it is, at least in the real world of fiscal constraints and trade-offs, if not in the rhetorical world of electoral politics.

First, the numbers involved are trivially small by comparison with the fiscal challenges. Three or four billion of revenues a year don’t even count as a drop in the fiscal ocean when it comes to the scale of the challenges facing us. And second, the fact that the changes have been announced doesn’t mean the revenue disappears. It’s still there, indeed more definitely so.

By accepting the NI cut, the opposition does make life more difficult for itself. That is £10 billion a year they have lost. The opposition have been just as shy as the chancellor about telling us what they actually intend to do on taxes and spending after the election.

If I am sceptical about Mr Hunt’s ability to stick to his current spending plans, I am at least that sceptical that Rachel Reeves will preside over deep cuts in public service spending.

The IFS fear that the next parliament could well prove to be the most difficult of any in 80 years for a chancellor wanting to bring debt down.

Paul Johnson says:

Even stabilising debt as a fraction of national income is likely to mean some eye wateringly tough choices – and we are talking tens of billions of pounds worth of tough choices – on tax and spending.

Johnson points out that the goal of getting debt falling, as a share of GDP, just in five years time is based on a whole series of unlikely, or undesirable things.

Perhaps the unlikeliest is that the government will stop freezing fuel duty.

And the least desirable perhaps is that investment spending will fall by £18bn a year in real terms.

There’s also the prospect of £20bn of cuts to day-to-day spending on a range of public services outside of health, defence and education.

That, Johnson says, will require some staggeringly hard choices which the government has not been willing to lay out.

He says:

Indeed, we heard yesterday that the next spending review, in which these choices will have to be announced, will rather conveniently not happen until after the election.

One only has to look at the scale of NHS waiting lists, the number of local authorities at or near bankruptcy, the backlogs in the justice system, the long-term cuts to university funding, the struggles of the social care system, to wonder where these cuts will really, credibly come from.

You can watch the IFS’s presentation here:

The Institute for Fiscal Studies’s analysis of the budget is just out.

And IFS director Paul Johnson says that nothing has changed very significantly following what Jeremy Hunt did yesterday, and what the OBR said.

That means we are:

• heading for a parliament in which people will on average be worse off at the end than at the start,

• looking at a debt to GDP ratio that is at its highest level in 70 years and is showing no signs of falling;

• facing debt interest payments at close to all time highs;

• seeing worrying increases in the number of individuals moving onto health and disability related benefits, bringing huge challenges for those households and rising costs for the public purse;

• (despite the genuinely significant cuts in NICs) stuck with a situation where tax revenues will have risen by a record amount as a share of national income over this parliament and still heading towards UK record levels;

• implicitly planning on big cuts in public investment spending overall and cuts to many areas of day-to-day spending on public services despite very obvious signs of strain in many areas.

In happier news, British businesses’ expectations for inflation over the coming years have dropped.

A survey from the Bank of England has found that firms expect to curb their price rises over the next year,with output price inflation expected to decline by 1.1 percentage points over the next 12 months.

Companies also expect inflation to fall, but remain over the UK’s target. One-year ahead CPI inflation expectations have declined further to 3.3% in February, down from 3.4% in January.

Happily for workers (if not the Bank), firms expect to pay inflation-beating pay rises.

Expected year-ahead wage growth remained unchanged at 5.2% on a three-month-moving-average basis, the BoE says, while annual wage growth was 6.7% in the three months to February.

Resolution Foundation also show the stark impact of the UK’s economic stagnation on living standards.

It will still take until 2026 for real wages to return to their 2008 level, their analysis shows – had real wages kept growing at their prefinancial crisis pace, the average worker in 2023 would have been around £14,000 better off

And, if the election is held at the end of this year, the period since 2010 will have seen GDP per capita grow by 0.8 per cent per year, and average wages by just 0.2 per cent per year in real terms.

On both measures, this would be the slowest growth of any party’s period in office since the Second World War: