Tuesday, November 29, 2022

Household disposable income will fall by a record 7% as the UK recession is confirmed

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Chancellor Jeremy Hunt has confirmed the UK is now in recession as it proposes £55 billion in tax hikes and spending cuts in its much-anticipated autumn budget.

The Chancellor acknowledged higher energy bills, high inflation and tax increases and warned: “Whoever says there are easy answers is not being honest with the British people.”

After what was dubbed the “austerity” budget, the pound fell against the US dollar on the back of gloomy forecasts from the independent budget watchdog Office for Budget Responsibility (OBR).

Household disposable income is set to fall by more than 7% over the next two years, according to OBR – the biggest drop on record.

That cumulative drop is large enough to wipe out growth over the past eight years and would take disposable income back to 2013-14 levels, the OBR says.

It added that the economy is set to contract even further by 2% next year on the back of sky-high inflation, while the national debt is expected to be £400bn higher than previously expected.

Latest Page News economics editor Joel Hills analyzes the UK economic outlook after the Chancellor’s budget.

Paul Johnson, Director of the Institute for Fiscal Studies (IFS), told Latest Page News: “For people in work – quite bleak times really in terms of their standard of living. That means we will all be worse off.”

He said the Government was “doing some things to protect pensioners and beneficiaries” but for those on “average” incomes – those on “average” incomes – those earning between £20,000 and £40,000 a year – it’s going to be “a very tough couple of years”.

“We’re all going to be worse off” – Paul Johnson, IFS Director

For those in lower-paying jobs who don’t collect benefits, many of their earnings won’t keep up with rising mortgage rates and rents, Mr Johnson warned.

Mr Hunt has been under pressure to restore the UK’s economic credibility and stability after Liz Truss and Kwasi Kwarteng’s disastrous mini-budget plunged the country into financial turmoil.

The fourth Chancellor of the year said he was proposing a “balanced path to stability” involving “difficult choices” to fill what has been described as Britain’s financial “black hole” to keep mortgage rates down and closed deal with skyrocketing energy and food prices.

Mr Hunt promised his budget would prioritize “stability, growth and public services” over inflation hit a 41-year high on Wednesday at 11.1%, with groceries rising at a 16.5% annual rate – exacerbating the cost-of-living crisis.

“High inflation is the enemy of stability. It means higher mortgage rates, higher food and fuel bills, businesses fail and unemployment rises,” he told the House of Commons.

“It erodes savings, causes labor unrest and cuts funding for public services. It hurts the poorest the most and erodes the trust on which a strong society is built.”

He vowed to help those most vulnerable, because “to be British means to be compassionate and this is a compassionate Conservative Government” – a comment that was met with derision and laughter from MPs.

But Rachel Reeves of the Labor Party suggested Mr Hunt, saying “Scrooge” had canceled Christmas for ordinary workers and “robbed the whole country” by using a “raft of camouflage taxes”.

“The Chancellor has even compared himself to Scrooge – he is urging working people to take the hit with less money in their pockets in the run up to Christmas but also for years to come,” the shadow Chancellor told the House of Commons.

“The mess we’re in is the result of 12 weeks of conservative mayhem, but also 12 years of conservative economic failure,” she said.

What was announced in the autumn budget?

Tax

Mr Hunt said his budget would “demand more from those who have more” as he announced the 45p income tax threshold would fall from £150,000 to £125,140. However, different tariffs apply in Scotland.

That means those earning £150,000 or more are paying just over £1,200 more a year, he said. The Treasury estimates that another 232,000 people will pay the highest income tax rate from April.

The Chancellor also skimmed through a fine-print change to the council tax rules that could be seen during his statement Council tax bills surpass a record £2,000 a year for the first time.

Although Mr Hunt didn’t directly address the Council Tax increase in his statement, he said local authorities in England would be given “extra flexibility”.

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