OBR watchdog warns Britons STILL face the worst drop in living standards since records began in the 1950s and the highest tax burden since World War II as the economy grinds to a halt this year – despite dodging a full recession
Britons are still facing the worst drop in living standards since records began in the 1950s and the highest tax burden since World War II, the OBR warned today.
The Treasury’s watchdog highlighted the ongoing woes, despite the latest forecasts, which say the outlook has improved since the fall.
The economy also remains on track to contract by 0.2 percent this year, although Jeremy Hunt boasted that UK plc will avoid a technical recession – defined as two consecutive negative quarters.
In documents accompanying the spring budget, the watchdog said the chancellor is only on track to meet his debt targets by the narrowest margins after a major childcare splurge and a fuel tax freeze.
It also potentially caused problems for the government by estimating that migration will now settle at 245,000 – higher than the 205,000 predicted in November.
The OBR watchdog highlighted continued woes despite latest forecasts, saying outlook has improved since autumn
The report states that real disposable household income (RHDI) per person is expected to fall by a cumulative 5.7 percent in the financial years 2022-23 and 2023-24.
“While this is 1.4 percentage points less than predicted in November, it would still be the largest drop in two years since records began in 1956-57,” the OBR said.
The decline in RHDI per person mainly reflects the rise in the price of energy and other tradable goods of which the UK is a net importer, pushing inflation above nominal wage growth.
This means that the real standard of living in 2027-2028 will still be 0.4 percent lower than pre-pandemic levels. But they are 0.6 percent higher than we predicted in November thanks to lower market expectations for medium-term gas prices and the upward revision of potential production.’
The watchdog said the latest forecast “continues to see the tax burden (the ratio of national accounts taxes to GDP) reach a post-war high of 37.7 percent of GDP by the forecast horizon in 2027-2028, including the highest ratio of corporate tax revenue relative to GDP since the tax was introduced in 1965′.
“We also still expect the ratio of government spending to GDP to stabilize at 43.4 percent, the highest sustained level since the 1970s,” he said.
The OBR underlined the huge impact of tax drag after an asset freeze was imposed on thresholds.
By 2027-2028, there are expected to be 3.2 million – 9 percent – more new taxpayers, and 2.1 million – 47 percent – more senior taxpayers than if the thresholds had been raised in line with inflation.
Another 350,000 – 47 percent – will be added to the list of additional taxpayers.
These numbers are slightly lower than our November estimates, largely due to the revised profile for CPI inflation.
The OBR said Mr Hunt had pledged money to ‘provide more support in the short term with utility bills and business investment, while boosting labor supply in the medium term’.
This will reduce inflation this year and, more importantly, sustainably increase employment and output in the medium term.
“But it causes debt to fall by only the narrowest margins over five years.”
Net migration flows amount to 245,000 per year, instead of the 205,000 assumed in our November forecast and 129,000 in our March 2022 forecast (left panel of Chart 2.7). A larger population, due to increased net migration, will add 0.5 percent to potential output in 2027.
Inflation is expected to fall slightly faster than expected