Labour is blasted for a ‘bonkers’ tax break for entrepreneurs as a leading expert warns ‘winter is coming’ and it ‘looks tough for many families’
John Healey’s Budget left the IFS sceptical about his spending plans (Image: Tejas Sandhu/SOPA Images/Shutterstock)
Britain faces the “worst decade for growth in household incomes on record”, according to a hard-hitting analysis by one of the country’s most respected financial watchdogs. The director of the Institute for Fiscal Studies (IFS) delivered a stern warning to Andy Burnham’s Government a day after Chancellor John Healey presented his first budget about the “depressing” outlook and the need for growth. Helen Miller warned that “no amount of temporary cost of living packages” with fix the poor growth in incomes, saying: “We need a stronger economy.”
Fellow IFS economist Tom Wernham said: “This decade is forecast to see barely any growth in household disposable income per person – only 2% over the 10 years. This compares to 12% growth in the 2010s, which itself saw lower growth than all the previous decades back to the 1950s.”
He said the slow growth had been exacerbated by two energy shocks and the freeze in the point at which people begin paying income tax.
She chastised Mr Healey for “a lot of small, unhelpful fiddling with the tax system” and put the Government’s spending plans under the spotlight. Present plans, she said, imply “some public services will see real-terms cuts in next year’s spending review” and avoiding these could require a “top-up of £17billion in 2030-21”.
Helen Miller is director of the Institute for Fiscal Studies (Image: -)
She said she is “sceptical” the Government was willing to make such cuts, adding: “When Chancellors pencil in tight spending plans in the future, they tend not to deliver.”
In a further criticism of Mr Healey – who quit as Sir Keir Starmer’s Defence Secretary in protest at military under-funding – she said she was “no wiser” about how he plans as Chancellor to get defence spending up to 3% of GDP by 2030, “let alone to 3.5% by 2035”. And she added she was “grumpy” that he had chosen to use reserves to partially fund the Defence Investment plan to get spending to 2.7% of GDP next year.
“This is categorically not what the reserves are for,” she said. “Drawing down reserves is another way that the government has reduced its buffer against future shocks. “
Commenting on the £100 payment to help with energy costs for households in band A-D properties, she said: “The key choice was to give a relatively small payment to around 80% of households, rather than a larger payment targeted on a smaller group. Alongside other temporary measures, it will help households over winter. But winter is coming and it still looks tough for many families across the country.”
Ms Miller was “disappointed to see yet another tax increase on landlords” and she said the further “tinkering with business rates” is “getting tiresome”. She described the new “founders’ relief” to encourage entrepreneurs as “bonkers”, saying it looks “like yet another tax break for a chosen group with little economic reasoning behind it”.
She added: “We have a tax system that is a mess.”
Energy taxation, she claimed “is a hodgepodge that creates wildly different tax rates across different energy sources”.
Warning of the consequences of a low-growth economy, she said: “This decade looks set to be the worst decade for growth in household incomes on record… It’s depressing. No amount of temporary cost of living packages will fix that. We need a stronger economy.”
Urging the Government to tackle the nation’s debt, she said: “Lower debt would allow us to stop devoting such an eye-watering share of our income to servicing the debt. It would give us more fiscal space to respond to the really big shocks of the future, whatever they may be.”
She concluded: “[We] should all hope that John Healey has more than hope up his sleeve when the time comes to settle the next spending review.”
Richard Fuller said families were ‘hammered’ by taxes (Image: Getty Images)
The IFS sounded the alarm as the Resolution Foundation warned of “catastrophic” forecasts, saying the 2020s are on course to be “an almost completely lost decade for living standards”. It expects the typical household’s income to drop by 3% – or £1,050 – between this year and 2028-29.
Richard Fuller, Shadow Chief Secretary to the Treasury, said: “Andy Burnham said this would be a ‘cost of living government. But his ‘everyday fixes’ will pale into insignificance as costs soar and tax rises hammer families. The Government is squeezing Middle England to pay for ballooning welfare spending because the Prime Minister prefers to talk about what he can’t do rather than do what he can do. Putting off difficult decisions or running scared of Left-wing backbenchers isn’t leadership.”
Ms Miller’s criticism of the Chancellor comes on the heels of the CBI claiming the Budget does “nothing concrete to provide breathing space for the vast majority of businesses who are already dealing with energy bills a third higher than their European counterparts”.