The IFS think tank said the Spring Statement 2022 has cut tax – but the tax burden is still rising overall by 2025 as Rishi Sunak was branded an ‘illusionist’ by experts
Tax cut ‘Illusionist’ Rishi Sunak is RAISING taxes on Brits to the highest since Clement Attlee, a bombshell think tank verdict has declared.
The respected Institute for Fiscal Studies said soaring inflation and frozen income tax thresholds will leave Brits worse off – despite fuel duty and National Insurance cuts in the Spring Statement, and the promise of a 1p income tax cut in 2024.
A median earner on £27,500 will be £360 worse off in 2022/23 than in 2021/22 – and a £40k earner will be nearly £800 worse off, the IFS said.
As the Spring Statement was blasted as not enough, Boris Johnson claimed the Chancellor had “helped to cut taxes for working people by, I think, the biggest single amount for the last 25 years.”
But IFS Director Paul Johnson said: “Mr Sunak has proven to be something of a fiscal illusionist. [His] statement contained big new tax cuts.
“But it also allowed taxes to rise. He can now expect to raise more in taxes as a share of national income by 2025 than he expected last October.
“In fact, taxes are set to rise to their highest level as a fraction of national income since Clement Attlee was prime minister.”
The IFS agreed with the PM that it was the biggest tax cutting event in any fiscal event since the Autumn 1995 budget. But he warned that he ignored the tax burden overall.
The IFS said even counting the tax cuts announced yesterday, overall, the Chancellor has still raised taxes by nearly as much as Gordon Brown did over a decade.
With UK inflation soaring to 6.2% – its fastest rise in 30 years – millions of households will be worrying about their own finances.
The 2022 cost of living crisis is hitting energy prices, fuel and the cost of food, with the government’s only solution so far to offer all households a £200 loan to help pay off their energy bills – which must be paid back eventually.
Chancellor Rishi Sunak’s Spring Statement saw him announce a cut in fuel duty, although this will cost the Treasury billions without putting cash back in families’ pockets.
So how will the Spring Statement affect you?
If you need help with the cost of living crisis, we’ve put together a list of charities and schemes offering advice and grants to keep you and your family warm and fed this year.
It comes after separate analysis said 1.3million Brits including half a million children will be dragged below the poverty line.
A typical working-age household will see their real income fall 4% next year – a loss of £1,100, the Resolution Foundation think tank said.
Absolute poverty – rather than relative poverty – is crucial because it is the measure Boris Johnson chooses to use.
In 2020 the PM controversially boasted poverty had failed when relative poverty was up and absolute poverty was down.
The Budget watchdog said soaring inflation – expected to nudge 9% in a four-decade high – will inflict the biggest disposable income drop since records began in the 1950s.
And today the Foundation warned poorer Brits will be hit harder as the Tory Chancellor refused to raise benefits – which will rise at less than half inflation.
The IFS watchdog said the rising inflation – but no new money for departments – will “almost certainly mean some more hefty real pay cuts across the public sector”.
It said student loan repayment reforms set to pull in more than £5bn a year “will effectively act as an increase in taxes on middle earning recent graduates”.
And he warned Rishi Suank has failed to protect the country’s poorest households for the rising cost of living.
Paul Johnson warned inflation levels experienced by the poorest households would be even higher than the Office for Budget Responsibility was forecasting.
“While benefit levels will catch up with inflation next year, that will be of little comfort to those budgeting week to week or to those who are unemployed this year but not next year,” he said.
“It is hard to understand the lack of action on this front.”
He sharply criticized the Chancellor’s decision to go ahead with a hike in national insurance while promising to cut income tax in 2024.
“His choice to increase NI rates and reduce the basic rate of income tax looks indefensible from an economic point of view, though one can see the political attractions,” he said.
And he said four years of freezes to the £12,570 salary where Brits start paying income tax – between now and 2026 – will rake in more tax than Brits save in Rishi Sunak’s 1p income tax cut in 2024.
IFS director Mr Johnson said “inflation and fiscal drag” have “magically doubled the scale of the tax rise he announced last year – the four-year freeze in the personal allowance and higher rate threshold.
“The proposed cut in the basic rate gives back only about half of the additional windfall he is now expecting to enjoy from that measure.”
Office for Budget Responsibility chief Richard Hughes said the rise in inflation would hit the national finances as well as households.
While increased prices and wages lead to increased tax revenues and inflation can reduce the value of government debt, the cost of servicing that debt will also rise.
“The Chancellor is also feeling the squeeze on his public finances, as households are,” Mr Hughes said.
At a Resolution Foundation event Mr Hughes said: “Lots of things that governments do are linked to inflation – 30% of the Government’s debt stock is linked to inflation, there is to be a big spike next year in debt interest costs as a result, you go up to £83 billion in one year, which we have never seen before here in the UK.
“Over the medium term, interest rates are higher because inflation expectations are higher, that took another £9 billion off the windfall (in the public finances) that we gave him (Rishi Sunak).
“Plus you have got welfare benefits being indexed to inflation – albeit with a lag, so they are not quite keeping pace with inflation.”
George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.