IFS Findings: Household Economic Situation Deteriorates Since Last Election
The Institute for Fiscal Studies (IFS) has expressed skepticism about the effectiveness of the tax cuts announced in the UK Budget, stating that they will not offset the impact of tax increases and rising prices. According to the IFS, households are likely to be worse off at the upcoming election than at the beginning of the parliament. Despite Chancellor Jeremy Hunt’s announcement of a £10 billion cut to National Insurance, the IFS notes that this parliament will witness a record level of tax increases.
The tax cuts are part of the government’s strategy to shift the tax burden away from workers and encourage people to re-enter the workforce. While the IFS acknowledges that the National Insurance cuts will benefit millions of workers, it emphasizes that they only represent a partial return of money taken away through other tax changes. The government’s earlier policy of freezing tax thresholds has resulted in a higher proportion of individuals’ salaries being subjected to tax.
The overall impact of the tax changes varies based on income levels. In the upcoming financial year, an average earner is expected to enjoy a tax cut of about £340, with those earning between £26,000 and £60,000 being better off. However, by 2027, the average earner would only be £140 better off, and only individuals earning between £32,000 and £55,000 per year would benefit from the combined tax changes.
Labor leader Sir Keir Starmer criticized the government’s approach, stating that it gives with one hand and takes even more with the other. The IFS director, Paul Johnson, highlighted that despite the National Insurance cuts, this remains a parliament marked by record tax increases. According to the IFS, the overall picture of living standards remains “dismal.”
The IFS analysis underscores the challenges faced by the government in balancing tax cuts, economic growth, and public spending as it prepares for an upcoming election. The economic impact and public sentiment regarding personal finances will be critical factors influencing the political landscape in the lead-up to the election.
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