Tax hikes ‘will last decades’, warns economist
Autumn Statement: Key announcements from Jeremy Hunt
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Respected think-tank the Institute for Fiscal Studies (IFS) said the Government’s struggle to grow the economy over the past 12 years meant significantly higher tax bills for decades. The comments by IFS director, Paul Johnson, will further enrage Tories angered by Jeremy Hunt’s economic plans.
Mr Johnson said the biggest drop in living standards would “hit everyone”, but warned “Middle England is set for a shock” as taxes are hiked while wages fall.
In a stark analysis, he said: “The truth is we just got a lot poorer.”
And he added that our “long, hard, unpleasant journey” has been worsened by a “series of economic own goals”.
Self-inflicted wounds to growth included Brexit, austerity-era cuts to education spending, the “large own goal” of former prime minister Liz Truss’s disastrous mini-Budget and the general political chaos of recent months.
Eight million people – nearly one in six adults – will be paying the higher rate of tax and two million the top rates within five years under Chancellor Jeremy Hunt’s plans announced on Thursday.
The IFS said the tax burden was set to reach a new post-war peak and will be equal to £100billion a year higher by 2027-28 than for most of the past 70 years.
The bleak picture emerged as Mr Hunt insisted ministers were doing “everything” to help families through the looming living standards slump – predicted to be the worst since records began in 1956.
In real terms, wages are not expected to return to 2008 levels until after 2027.
The economic outlook is so dire, experts at the Office for Budget Responsibility predict a year-long recession and a two-year housing downturn.
Mr Hunt defended his Autumn Statement package, saying it would help get the economy “on an even keel”.
He said: “Over the next two years it is going to be challenging.
“But I think people want a Government that is taking difficult decisions, has a plan that will bring down inflation, stop those big rises in the cost of energy bills and the weekly shop and at the same time is taking measures to get through this difficult period.”
Jacob Rees-Mogg is among the senior Tories who have criticised Mr Hunt’s £25billion rises, which leaves millions with the highest level of taxation since the Second World War.
Tory MP Sir Charles Walker said he did not “particularly like” the Autumn Statement, but it was necessary because the Conservatives were “in a hole”.
He said: “I won’t say good Budget, because lots of people will be feeling very sore this morning. But I think it was a necessary Budget.”
Sir Charles said it was going to take the Tories time to bounce back, but the “immediate crisis” of the party trailing in the polls a few weeks ago had passed.
He added: “I think we’re still in a hole. In the balance of probability, after 14 years, the Conservatives are not going to form the next Government. But they might – it’s not impossible.”
The Resolution Foundation heaped further pressure on Mr Hunt, warning his cuts did not appear achievable and unprotected departments would face George Osborne-style austerity. Research director James Smith said: “They don’t look obviously deliverable.
“If you take the spending cuts that are in place and subtract out the protected departments like health and defence, you end up with really big falls in those unprotected departments.”
Mr Smith said those departments would be facing “2014/15 levels of austerity”.
Money-saving expert Martin Lewis said people in the middle would feel the biggest squeeze.
He said: “I was relatively relieved that we saw the uplifting of those who are the poorest in society.”
But he added: “Clearly, the people who bare the brunt on this, we’re going to have a squeezed middle.”
However, Kristalina Georgieva, managing director of the International Monetary Fund, said Mr Hunt’s Autumn Statement “strikes the right balance”.
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