The British people “just got a lot poorer” after a series of “economic own goals” that have made a recovery much harder than it might have been, a leading thinktank has said.
In his verdict on the chancellor’s autumn statement, Paul Johnson, the director of the Institute for Fiscal Studies (IFS), said the government was “reaping the costs of a long-term failure to grow the economy”, along with an ageing population and high levels of historic borrowing.
Jeremy Hunt’s statement on Thursday revealed that the UK was already in a recession that is expected to last more than a year and knock 2% off economic output.
“The truth is we just got a lot poorer. We are in for a long, hard, unpleasant journey; a journey that has been made more arduous than it might have been by a series of economic own goals,” Johnson said.
“Mr Hunt appears to have recognised this. After years of cakeism, his colleagues, the opposition and we the voters need to take that fact onboard, too.”
Asked to lay out what he meant by “own goals”, Johnson said these included “reducing investment spending”, a decision made by a series of governments, and cutting spending on vocational and further education.
“Very clearly Brexit was an economic own goal,” Johnson said. “Economically speaking that has been very bad news indeed.
“Obviously, the mini-budget of a couple of months ago didn’t help. In fact, that was another very large own goal.”
In a separate assessment, the Resolution Foundation said the outlook for living standards was “truly grim”. The weak forecast for pay and high inflation means that wages “will not return to their 2008 level until 2027”.
Had wages grown at the same rate as before the great financial crisis in 2008, they would be £15,000 a year higher. There has been a “19-year pay downturn”, the thinktank said.
Living standards are expected to fall by 7% over the next two years, according to the independent spending watchdog, the Office for Budget Responsibility. The IFS said this would cap off a “dismal decade” for economic growth and push back progress on household spending power to 2013 levels.
Amid the dire warnings on the long-term outlook for the UK, the IFS hit out at the chancellor’s decision to delay social care plans. Johnson said: “It is awful that the social care reforms will not now be implemented next year as planned,” adding that he feared the two-year delay “amounts to a death knell” for the changes.
“Government should not be making and then reneging on promises like this which matter so much to vulnerable people,” he said.
Forecasts also suggest that there will be no return to the pre-financial crisis rate of income growth either.
“We’re heading for another lost decade of income growth,” said Xiaowei Xu, a senior research economist at the IFS.
Johnson said those on middle incomes would feel the immediate biggest hit from tax rises in the autumn statement. “Middle England is in for a shock,” he said.
Benefits are also lagging rising living costs overall, the IFS noted.
“It won’t be until April 2024 when inflation subsides that real benefit levels actually catch up to their pre-pandemic level,” Xu said.
The IFS and the Resolution Foundation have queried the credibility of sweeping spending cuts required to balance the books in the years after the next general election, by 2027-28.
Johnson said the chancellor’s effort to put off the pain of cuts for a few years in the hope that the economic situation improves was a gamble. “Things could turn out worse that predicted. If so, the pain to come will be even greater.”
Fiscal challenges in the next few years would be severe whether or not the economic growth picks up pace, the thinktank said. “Borrowing is going to be relatively high into the foreseeable future. Tax is going to be very high indeed,” Johnson said.
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Guardian
