Millions worse off next year

A combination of tax rises and higher living costs will result in millions of people worse off next year.

Economic think tank the Institute for Fiscal Studies (IFS) warned that the impact of rising price inflation and higher income taxes would offset small wage increases for middle earning families.

And lower-income families will also suffer “real pain” due to living costs rising faster than increases in state benefits.

The IFS analysis follows Chancellor Rishi Sunak acknowledging during this Autumn Budget that families face financial strain.

Responding to the Budget announcement, IFS director Paul Johnson said that “millions will be worse off in the short term” due to rising living costs.

Accompanying the Budget statement was a forecast from the independent Office for Budget Responsibility (OBR) warning that living costs could rise at their fastest rate in 30 years.

The OBR forecast price inflation will average 4% next year, up from its current level of 3.1%.

Analysing the Budget, the IFS referred to the Chancellor’s delivery as “upbeat”, but Paul Johnson added:

“Unfortunately for him, and for us, the outlook for living standards does not match this upbeat tone.”

He said that rising income tax and National Insurance contributions, along with higher price inflation, will “mean very slow growth in living standards.”

Their analysis found that middle earners with a salary of £25,000 a year will have pre-tax pay just about outpacing price rises. However, higher taxes will mean their net-pay falls by £180 a year, or around 1%.

Speaking to the BBC about Rishi Sunak’s Budget statement, Paul Johnson said:

“What he’s done is use the pandemic as cover for what I think was probably necessary – a big increase in NHS spending, being funded by this increase in National Insurance contributions, and undoing some of the very big cuts we’ve seen to the justice, further education and school system over the last decade.”