The UK is investing too little and growing too slowly while living standards stagnate, a thinktank has said following the chancellor’s budget.
The Resolution Foundation said Jeremy Hunt announced an “impressively broad suite of policies to encourage more people into work” but added that Britain’s economy remains in a “deep funk”.
It also criticised a tax break to discourage an estimated 15,000 high earners from leaving the workforce early, saying the cost would be about £80,000 per extra worker. The employment gains may be “overstated”, as giving “very large wealth boosts” could even encourage some people to retire earlier, adding that someone with a £2m pension pot will receive a tax cut of almost £250,000, it said.
The thinktank’s overnight analysis report of Hunt’s statement to the Commons said a £28bn three-year increase in investment allowances will deliver a temporary 3% boost but suggested Britain needs a permanent 30% boost to catch up with its competitors France, Germany and the US.
The Resolution Foundation said it had been a disastrous decade for living standards, with typical real household disposable incomes on track to remain lower by the end of the forecast (2027-28) than they were before the pandemic (2019-20).
Taxes as a share of GDP are on track to hit a 70-year high of 37.7% by 2027-28 – a 4.7 percentage point increase since 2019-20, equivalent to nearly an extra £4,200 for every household in the UK, it added.
Pressure on public services was largely ignored, although unprotected departments face 10% cuts to real day-to-day spending per capita by 2027-28, rising to 14% if the aspiration for defence spending to rise to 2.5% of GDP is met over the next parliament, the thinktank said.
It welcomed what it called “much-needed help for parents”, with the biggest increase in childcare support on record set to encourage more parents to work and make it worthwhile for many to work longer.
The Resolution Foundation’s analysis said that, under the current childcare system, a single parent of a one-year-old earning the National Living Wage would see their income fall after childcare costs by £370 if they moved from 25 to 35 hours of work a week. However, under the new system, the same parent would receive an income boost of £700.
It said the richest fifth of households were poised to gain £180 on average from the extra childcare entitlement, compared with £130 for the middle fifth of households, and £20 for the bottom fifth.
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Torsten Bell, chief executive of the Resolution Foundation, said: “Jeremy Hunt’s first Budget was a much bigger affair than many expected, combining improvements to the dire economic and fiscal outlook with a significant policy package aimed at boosting longer-term growth in general, and the size of the workforce in particular. A step change in childcare support stands out.
“But, stepping back, the UK’s underlying challenges remain largely unchanged. We are investing too little and growing too slowly. Our citizens’ living standards are stagnant. We ask them to pay higher taxes, while cutting public services. No one budget could turn that around, but it’s time Britain did.”
