The UK has entered a “new era” of greater taxes, according to the Institute for Fiscal Studies (IFS).
Director Paul Johnson stated that middle-income workers were “in for a rude awakening” due to rising taxes and costs.
In his Autumn Statement, the chancellor outlined proposals to raise taxes to stabilize the state budget and provide assistance with energy costs.
In their review of the proposals, the IFS stated that the most difficult decisions about spending reductions have been deferred until beyond 2024.
Friday, the Chancellor of the United Kingdom, Jeremy Hunt, admitted that “very difficult days” were ahead, but stated that his proposals gave the public “confidence” as to how the government would assist them during the recession.
Mr. Johnson of the IFS, however, cautioned that living standards were facing the “greatest decrease in living memory” due to sluggish economic growth, an aging population, and high levels of government borrowing in the past.
“The truth is that we have become much poorer. We are in for a long, laborious, and unpleasant journey; a journey made more difficult than it would have been by a series of economic own goals, as stated by Mr. Johnson.
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 regarded the economic outlook as “gloomy” and predicted that the average tax burden would not recover to pre-pandemic levels for “many decades.”
Altogether, the tax increases announced on Thursday amount to almost £25 billion. The measures consist of:
- The freezing of tax thresholds until April 2028 will cause millions to pay more tax.
- The top 45% extra rate of income tax will begin to apply to individuals earning over £125,140, rather than £150,000.
- Local councils in England would be permitted to raise council tax by 5% annually, up from the current 3%, without a local referendum.
Mr. Johnson stated that middle-income earners would be severely hurt because they would not receive targeted government assistance.
“Their wages are declining, while their taxes are increasing. Middle England is in for a rude awakening,” he remarked.
According to the estimate of the think tank, homeowners will pay £900 per year more for energy after the energy price cap increases in April and without the £400 refund this year.
Daniel Cooke, a father of three, has already taken on a second job delivering takeout in the evenings since he does not qualify for more assistance.
With the government’s aid, we’ve been able to virtually survive… It will be taken away from us with little to no wrongdoing on our part.
“This is a worrisome and anxious time for our young family. I have no idea how we will pay our bills or how we will pay for our gas and electricity.”
In the Autumn Statement, the chancellor indicated that tax thresholds will be frozen for an additional two years, until 2028. This means that the threshold at which tax liability begins is fixed and not indexed to inflation. Consequently, persons will pay a greater proportion of their income in taxes as their wages increase.
While taxes will increase in April, practically all budget cuts will be postponed until after the next general election in 2024, a move that has drawn criticism from certain Conservative Party members.
Former business secretary Jacob Rees-Mogg encouraged the chancellor to examine additional government spending cuts “before resorting to the simple alternative of raising taxes.
However, Mr. Hunt defended his proposals by stating, “Sound finances are more important than cheap taxes.”
He also rejected that the statements represented an “attack on working people” and argued that £25 billion could not be raised by “focused on a very tiny number of extremely wealthy individuals.”
In addition to tax increases for people with ordinary earnings, he stated that his proposal entails “watching out for the most vulnerable,” citing additional targeted payments for retirees, persons on means-tested benefits, and people who get disability benefits to assist with growing costs.
The International Monetary Fund (IMF) also complimented the Autumn Statement for balancing the need to reduce prices and protect people’s incomes during an economic downturn.
In sharp contrast to the criticism it leveled at Kwasi Kwarteng in the wake of September’s mini-budget, the IMF stated, “We commend the government’s efforts to better protect the vulnerable and to prioritize education, health, and investment.
Rachel Reeves, however, stated that the government might have made “fairer decisions” about taxes.
“We need a serious plan to build the economy,” she said, criticizing the government’s decision to decrease the tax surcharge on banks and its failure to adopt 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 continued.
The IFS analysis also revealed that, by 2028, average households will be 30% worse off than they would have been if earnings had continued to expand as they had before the 2008 financial crisis.
Its conclusions were consistent with those of the Resolution Foundation, a think tank focused on low-income individuals.
According to the Resolution Foundation, the chancellor’s economic proposals will increase the pressure on the “squeezed middle,” whose wages will be permanently reduced by 3.7%, which is greater than that of the very wealthy.
It said that it believed the Thursday expenditure cuts would be “undeliverable” because they would require “years of holding public sector wages below those of the private sector.”
