Budget plans risk ‘second lost decade’ of living
standards, Jeremy Hunt told
Exclusive: Joseph Rowntree Foundation finds widening
gulf between demand for tax cuts and reality for millions struggling
Richard
Partington and Aletha Adu
Mon 4 Mar
2024 00.01 GMT
Jeremy Hunt
has been told Wednesday’s budget risks condemning Britain to a second “lost
decade” for living standards that would leave working families £1,900 a year
worse off.
The
chancellor enters a crunch week under pressure from his party to deliver a
package of pre-election tax cuts, but analysis by the Joseph Rowntree
Foundation (JRF) finds a widening gulf between these political demands and the
reality facing millions of struggling people.
The poverty
charity said fixing Britain’s crumbling public realm and tackling sky-high NHS
waiting lists ranked significantly higher in the list of voter priorities than
the level of tax on earnings.
Publishing
an opinion poll of almost 5,000 people across Britain carried out by YouGov, it
found almost three quarters were “very worried” or “fairly worried” about
funding for the NHS and other public services, compared with less than half who
were concerned about tax on earnings.
Speaking on
Sunday, Hunt said he wanted to move Britain towards becoming a lower-tax
economy, but that he would only be able to do so “as and when we can afford
it”.
Hosing down
Tory hopes for a large package of giveaways in a round of media interviews, he
said the most “unconservative” thing he could do would be to announce tax cuts
funded by higher borrowing. “This will be a prudent and responsible budget for
long-term growth,” Hunt said.
His
comments come as he grapples with self-imposed rules requiring government debt
to be falling as a share of the economy by the fifth year of forecasts made by
the Office for Budget Responsibility, the tax and spending watchdog.
It is
understood the Treasury has been handed forecasts from the OBR showing headroom
of just under £13bn within this target before any new tax or spending decisions
are made – significantly less than the £30bn in pre-measures headroom before
last year’s autumn statement.
Aiming to
find extra room to fund broad-based tax cuts, Hunt has considered poaching
Labour’s policy to scrap the non-dom tax regime, alongside proposals for a new
duty on vaping, and raising £300m a year by putting up taxes on second-home
owners who profit from holiday lets.
Hunt is
also planning a £1.8bn public-sector productivity drive, arguing efficiency
gains can be found to improve the quality of services while freeing up cash for
lower taxes.
Abolishing
the non-dom tax regime would raise an estimated £3.6bn a year, but would be
highly politically charged, given that Rishi Sunak’s wife, Akshata Murty, had
used it to save paying millions in UK tax.
Unions said
more than a decade of austerity had already squeezed the public sector, and
that a fresh productivity drive was only likely to result in further cuts to
public services.
The general
secretary of Prospect, Mike Clancy, said: “Every time this government finds
itself in a difficult spot, it conjures up a phantom villain to pin its
failings on. But after 14 years in charge, blaming hardworking civil servants
and supposed wokery simply won’t wash with voters.”
With Sunak
scrambling to reboot his premiership before a general election expected later
this year, two main tax cuts in consideration are thought to be reductions in
employee national insurance or income tax. A cut in national insurance of 1p
would cost the Treasury about £5bn a year, however, while reducing the 20p
basic rate of income tax by a similar amount would cost about £7bn a year. An
extension of a reduction in fuel duty worth about £1bn a year is also being
explored.
Tory
backbenchers have urged the chancellor and the prime minister to “be brave and
bold” and fund tax cuts on Wednesday amid fears it is the party’s last chance
to convince the public they actually have a plan.
One Tory MP
said people needed to see an improvement in their finances “sharpish”. “It’s
not enough to make a statement saying how much you love this country. They need
to show it with a 2p tax cut.”
Another
said: “Labour may find another way to trip themselves up, but we need to focus
on tax cuts. It’s the only way we can show we understand the difficulties
people are facing with high costs at the moment. It’ll be hard to fight ‘out of
touch Tory’ slogans this election campaign.”
The former
Tory chancellor Ken Clarke, however, said he was fed up with speculation and
briefing over the government’s plans to buy votes with tax cuts. He told Times
Radio the public wanted to be reassured that there was a prospect of “getting
back to the kind of growth with low inflation that steadily improves our public
services and daily way of life”.
In a report
urging Hunt to look at areas other than tax cuts to support hard-pressed
people, JRF said the budget risked keeping the UK economy locked on track to
leave working families £1,900 a year worse off in 2029 than they were in 2021.
It said
households’ average post-tax earnings at the start of 2024 were as much as
£2,400 a year lower than at the start of 2021. Working households could benefit
from rising wages and lower inflation as the UK economy recovers from
recession, but it said progress would be limited and unable to overcome this
earlier shortfall.
JRF’s chief
economist, Alfie Stirling, said the prospect of a “second lost decade” would
come after 14 years of stalling progress to raise living standards, including
the failure to increase average workers’ pay substantially above pre-2008
levels after inflation was taken into account.
“Unless
policy makers intervene, the 2020s are set to see an unprecedented second lost
decade of living standards in a row. As an economy, as a society and as a
country, we simply can’t afford this to happen,” he said.
“With the
budget just days away, renewed political energy and policy bravery is needed
urgently to avert a second period of unthinkable decline.”
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