As a result of the Autumn Statement, the Institute for Fiscal Studies (IFS) has concluded that higher taxes are “likely to remain” for the foreseeable future.
According to the statement, the United Kingdom has entered a “new era” of greater taxes as the government strives to gather funds to bolster the economy and pay obligations.
Director of the IFS Paul Johnson stated that “Middle England” in particular “is in for a rude awakening.”
The chancellor was criticized for introducing tax increases at a time when prices are soaring.
Friday, Jeremy Hunt defended the remarks made during his economic update, in which he stated that tax thresholds would be raised, increasing tax payments for millions.
Mr. Johnson, however, cautioned that the decision to increase taxes at a time when prices are rising at the quickest rate in 41 years would result in the “worst decline in living memory” for living standards.
He further stated that homes were in for a “long, difficult, painful trip.”
“Everyone will feel this. In the opening remarks of the influential think tank’s analysis of the chancellor’s economic strategy, he predicted that individuals with middle-class earnings will be hurt most.
The tax increases proposed under the measures presented on Thursday total approximately £25 billion. Among the measures were:
The immobilization of tax thresholds until April 2028 will increase the tax burden for millions.
The top 45% extra rate of income tax is applied to incomes over £125,140, as opposed to £150,000.
Local councils in England would be permitted to raise the council tax by up to 5% each year, as opposed to the existing 3%, without a local referendum.
Mr. Johnson stated that middle-income earners will be hard-hit by the rising cost of living because they do not receive targeted assistance.
Their wages are declining and their taxes are rising. Middle England is in for a surprise,” he declared.
According to the analysis of the think tank, households will pay energy bills that are £900 a year higher than they are now and £1,800 a year higher than they were a year ago.
Daniel Cooke, a father of three, told that he will not qualify for extra assistance, but he has already taken on a second job delivering takeaways in the evenings.
“Thanks to government aid, we’ve been able to survive… Because of almost no fault of our own, [it will now be taken away] from us.
“As a young family, we are going through a very frightening and anxious time. How we’re going to pay our bills, how we’re going to pay for our gas and electricity, I have no idea.”
Paul Johnson added that the government was “reaping the costs of a long-term failure to grow the economy,” as well as the effects of an aging population and high levels of debt from the past.
“We are in for a long, difficult, and unpleasant journey; a journey made more difficult than it could have been by a series of economic own goals,” he stated. Mr. Hunt appears to be aware of this.
Thursday, the Office for Budget Responsibility, the government’s independent forecaster, announced that the United Kingdom was in a recession and predicted that the economy would contract next year.
Mr. Johnson described the economic outlook as “gloomy” in light of higher taxes and increased government borrowing over the next two years, followed by a reduction in spending.
“I would be extremely surprised if the tax burden returned to its long-term pre-Covid average within the next few decades. I believe that higher taxes and a larger state are here to stay unless something quite radical occurs,” he added.
He also suggested that the government had postponed the “properly difficult” decisions required to balance its books in the hope that an economic recovery would reduce the need to cut spending so drastically and reduce the interest it must pay on its debts.
While taxes will increase in April, almost all spending reductions will be postponed until after the next general election, which is anticipated to occur in 2024.
But on Friday, Jeremy Hunt defended his plans, “Sound financial management is more important than low taxes.
However, former business secretary Jacob Rees-Mogg urged the chancellor to consider additional government spending cuts “before resorting to the easy option of raising taxes.
Rachel Reeves, the shadow chancellor, also suggested that the government could have made “fairer choices” regarding taxes.
“We need a serious plan to grow our economy,” she said, criticizing the government’s decision to cut bank taxes and its failure to introduce a non-dom tax status or tax private equity bonuses.
“Had [the government] done some of these things, it would not have been necessary to raise taxes on average citizens. This government is consistently more concerned with the pockets of the average man and woman than with those with broader shoulders,” she added.
The IFS analysis also revealed that average households will be 30% worse off than they would have been if incomes had continued to grow as they had before the 2008 financial crisis.
Its findings mirrored those of the Resolution Foundation, a think tank that focuses on low-income individuals.
According to the Resolution Foundation, the chancellor’s economic plans will increase the pressure on the “squeezed middle,” whose incomes will be permanently reduced by 3.7%, which is greater than that of the very wealthy.
It added that it believed Thursday’s proposed spending cuts would be “undeliverable” because they would require “years of holding public sector wages below those of the private sector.”
