In a bid to woo voters ahead of the upcoming general election, the chancellor unveiled a series of pre-election giveaways in yesterday’s autumn statement. While the measures included welcome policy changes addressing issues such as the tax system’s bias against working-age earnings and the benefit system’s struggle to keep pace with rising rents, the broader economic stagnation remains unaddressed.
According to overnight analysis by the Resolution Foundation, households are projected to be £1,900 poorer at the end of the parliament than they were at the beginning.
Key findings from the analysis reveal a mixed bag of impacts on different income groups:
Top earners benefit the most
Approximately 40% of the gains from tax and benefit measures announced, including cuts to National Insurance and changes to the Work Capability Assessment, accrue to the wealthiest fifth of the population. The top 20% are set to gain an average of £1,000, while the bottom fifth sees only a £200 increase on average.
Some progressive measures
While the autumn statement’s tax and benefit measures are skewed towards the wealthiest, the overall impact of measures implemented over the parliament remains progressive. The richest fifth of households are projected to lose an average of £1,100, while the poorest 20% gain an average of £700.
Taxes on the rise
Despite the chancellor’s emphasis on tax cuts, the analysis indicates a contradiction. The £20 billion tax cuts proposed in the autumn statement are overshadowed by previously announced tax rises, including higher corporation tax, amounting to around £90 billion. This results in a 4.5% increase in taxes as a share of GDP between 2019–20 and 2028–29, equivalent to £4,300 per household.
Boost for renters in specific areas
The decision to re-peg local housing allowance at the 30th percentile of rents in 2024–25 is expected to benefit approximately 1.6 million renters. The largest boosts are anticipated in areas with soaring rents, including inner South London (+£50 a week), inner Greater Manchester (+£41), and Bristol (+£40).
Post-election spending cuts loom
The analysis highlights potential spending cuts post-election, especially in unprotected departments such as justice, local government, and the Home Office. Failure to account for higher inflation in public services spending plans could lead to a 14% per capita day-to-day budget reduction, equivalent to a real-terms cut of £17 billion between 2022–23 and 2027–28.
Real wages stagnate for two decades
While nominal wages show growth, the reality of higher inflation means real wage growth is far less. Average earnings are not projected to return to their 2008 peak until 2028, marking an unprecedented 20-year period of pay stagnation.
Living standards hit a new low
With just a year remaining until the next general election, parliament is on track to be the first where real household disposable incomes fall by 3.1% from December 2019 to January 2025. On average, households are expected to be £1,900 poorer at the end of this parliament compared to its beginning.
Commenting on the findings, Torsten Bell, chief executive of the Resolution Foundation, expressed concern over the chancellor’s fiscal choices, describing them as “pre-election giveaways.” He also noted the clash between “tax-cutting rhetoric” and the reality of rising taxes.
Highlighting the challenges of governing in an era of higher interest rates and a slower-growing Britain, Bell said, “What might be difficult for policy makers, is a disaster for households whose wages are stuck in a totally unprecedented 20-year stagnation. This parliament is set to achieve a truly grim new record: the first in which household incomes will be lower at its end than its beginning.”
This article is based on a press release from the Resolution Foundation.