UK warned tax won’t return to pre-Covid levels for decades after ‘series of economic own goals’

From 2h ago

Tax burden unlikely to go back to pre-Covid levels in ‘next few decades’

We’re in a “new era” of higher taxation and higher spending as a fraction of national income as a bigger state.

Charts show there is a “sharp change”, Johnson said. “I’d be most surprised if the tax burden gets down to its long term pre-Covid levels at any point over the next few decades,” he said.

On public spending, numbers aren’t too bad over the next few years, he says. It will only grow “marginally less quickly” relative to last year’s generous spending review.

The government is still not going to be able to fund public sector pay rises that anywhere near match inflation. This will remain “one of the biggest challenges” facing the government this year.

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IFS director Paul Johnson has been pressed by journalists in the Q&A what the “economic own goals” he alluded to in his opening remarks are.

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He said they include the following:

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Slashing investment spending in 2010, announced by last Labour government but continued by George Osborne. “Not a good way to get growth,” he said.

Cutting spending on education especially “huge cuts” to vocational and further education but also schools. Although schools spending is going up, FE didn’t get a mention in the autumn statement.

Brexit “very clearly” – economically speaking that has been “very bad news indeed” and continues to be, especially because of the hard Brexit and distancing from single market.

The mini-budget “obviously didn’t help” – “another large own goal”.

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The chancellor is hemmed in by rising interest rates and dreadful growth prospects, Johnson said.

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He’s allowed borrowing to rise and put off tough decision for a couple of years – hoping things will be better or it’ll be someone’s problem.

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We’re reaping the costs of long term failure to grow the economy, an ageing population and high borrowing.

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“What a combination,” he said.

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The situation has been made worse by a series of “economic own goals”.

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We’re in a “new era” of higher taxation and higher spending as a fraction of national income as a bigger state.

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Charts show there is a “sharp change”, Johnson said. “I’d be most surprised if the tax burden gets down to its long term pre-Covid levels at any point over the next few decades,” he said.

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On public spending, numbers aren’t too bad over the next few years, he says. It will only grow “marginally less quickly” relative to last year’s generous spending review.

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The government is still not going to be able to fund public sector pay rises that anywhere near match inflation. This will remain “one of the biggest challenges” facing the government this year.

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The Institute of Fiscal Studies is presenting its analysis of the autumn budget. I’ll keep you updated on the key lines.

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The key point, says director Paul Johnson, is that Hunt is “more fiscally responsible’” than his predecessor Kwasi Kwarteng, he did “relatively little” to offset some big increases in borrowing.

He decided it’s fine to cover current spending and is meeting his fiscal rules in five years’ time “by a hair’s breadth”.

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This was “not a particularly fiscally conservative statement”, in rather Hunt was doing “the minimum he needed to to regain credibility. All the tightening is coming after the next election – in fact, spending is rising over the next couple of years.

Given the precarious state of the economy there is “good reason for that”. “He’s clearly hoping for good news later on” so the spending cuts pencilled in aren’t needed.

But things could turn out worse than predicted.

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Chancellor Jeremy Hunt has conceded that Boris Johnson’s hard Brexit deal has caused damaging trade barriers with the European Union, as he said immigration will be “very important” for the economy.

Hunt insisted the UK would find a way to improve trading ties with the EU without rejoining the single market.

His comments came after the Office for Budget Responsibility (OBR) said Brexit caused a “significant adverse impact” to trade volumes and business relationships between UK and EU firms.

Asked if rejoining the single market would boost growth, the Chancellor told BBC Radio 4’s Today programme:

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I think having unfettered trade with our neighbours and countries all over the world is very beneficial to growth.

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I have great confidence that over the years ahead we will find outside the single market we are able to remove the vast majority of the trade barriers that exist between us and the EU. It will take time.

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Pressed on the single market, he said:

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I don’t think it’s the right way to boost growth because it would be against what people were voting for when they supported Brexit which was to have control of our borders and membership of the single market requires free movement of people.

So I think we can find other ways that will more than compensate for those advantages.

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Hunt insisted that immigration is required to boost growth.

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There needs to be a long-term plan if we’re going to bring down migration in a way that doesn’t harm the economy.

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We are recognising that we will need migration for the years ahead – that will be very important for the economy, yes.

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The Resolution Foundation’s research director has said Jeremy Hunt’s cuts do not appear achievable, saying unprotected departments would face George Osborne-style “2014/15 levels of austerity”.

Research director James Smith said:

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They don’t look obviously deliverable. If you take the spending cuts that are in place and subtract out the protected departments like health and defence, you end up with really big falls in those unprotected departments.

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Hard to see how given the legacy of austerity, given public sector wages are already lagging behind and given this is effectively tying the hands of governments, it’s really hard to see how those will be delivered.

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Smith added that Thursday’s autumn statement had seen the biggest deterioration in forecasts since the Office for Budget Responsibility (OBR) was launched in 2010 due to the “damage” from higher interest rates.

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What we saw yesterday was the biggest deterioration in the overall forecasts since the OBR started producing these forecasts.

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What is doing the damage here is higher interest rates.

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Higher inflation and higher interest rate costs are both doing damage to the fiscal position.

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Jeremy Hunt was questioned why he did not do anything about the non-dom tax status. The chancellor said the Treasury did not give him estimates on how much abolishing the non-dom tax status would raise, but added he would rather the super rich “stayed here and spent their money here”.

The Chancellor told BBC Radio 4’s Today programme:

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They said to me that they were very unsure about the figures that were being bandied around, as far as the savings were concerned.

Like me they wanted to be very sure they weren’t doing things that damaged the UK’s attractiveness. These are foreigners who could live easily in Ireland, France, Portugal, Spain, they all have these schemes. All things being equal, I would rather they stayed here and spent their money here.

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Pressed whether the Treasury gave him a figure on how much abolishing the status would bring in, he said:

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No, because we don’t agree with the figures that Labour have given.

The Treasury did not tell me it was going to help the economy to do this, that’s why I chose not to do it.

I’m not going to do anything that’s going to damage the long-term attractiveness of the UK, even though it gives easy shots to opposition parties, I think it would be the wrong thing to do in terms of creating jobs in the UK.

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Shadow chancellor Rachel Reeves said that Labour would have got rid of non doms, and made different tax decisions such as VAT on private school fees and going bigger on windfall taxes.

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But she told Sky News she is “pleased” about the decisions the Government made on the triple lock and benefits, but said she was still concerned with energy bills rising.
Challenged about the budget containing many measures Labour should like, Ms Reeves said:

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I didn’t feel like that. I’m really worried about what’s going to happen to people’s living standards from April.

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She said Labour would not be laying out specific proposals for the economy until the next election, but added:

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Even if you have a difficult fiscal inheritance, and we know that a Labour government will have that due to the choices the Conservatives have made, you can still make different choices and prioritise different things.

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Jeremy Hunt has said it was not “easy” for him to delay the social care cap, which he insisted he “passionately did not want to do”.

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The decision to delay the cap until October 2025 has been criticised by the economist behind the plan. Sir Andrew Dilnot, who advised several conservative governments on fixing the care sector, said he was “astonished, puzzled and deeply disappointed”.

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He added that the government had now broken a 2019 manifesto promise to “fix social care” and implement changes that were finalised a year ago. They included raising the amount of assets a person can have before getting state funding for social care from £23,250 to £100,000 as well as capping lifetime care costs at £86,000.

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This morning Hunt told BBC Breakfast: “I don’t pretend this was an easy thing for me to do given what I said in 2013 but it does mean we can give overall a bigger increase to social care than it’s ever had in its history.

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“Some of those decisions are very hard for me as chancellor. I’m a Conservative chancellor that has put up taxes, I’ve had to delay those Dilnot reforms to social care which is something I passionately did not want to do.

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“But I’m doing it because we face an international economic crisis and I recognise that people are worried about the future and I’m prepared to do difficult things even if they’re things I wouldn’t personally choose to do, because they’re the right thing for the country.”

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Jeremy Hunt’s autumn statement will mean Britain’s workers will miss out on pay rises worth £15,000 over the next five years as the chancellor’s tax-heavy budget pressures the nation’s “squeezed middle”.

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Figures published alongside the Jeremy Hunt’s autumn statement on Thursday by the Office for Budget Responsibility said the UK was in a recession that would wipe out eight years of growth, with British households set to face the biggest fall in living standards since records began.

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The Resolution Foundation thinktank said on Friday that the dire economic outlook means that real wages are now not expected to return to 2008 levels until 2027.

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If pay had continued to grow at the pre-crisis peak, workers would be £292 a week, or £15,000 annually, better off over the next five years.

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You can read the full story here:

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Welcome to the politics blog. Jeremy Hunt has been doing the morning media round to defend his autumn statement and has warned that the next two years will be challenging.

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The UK chancellor appeared on Sky News the day after announcing that millions more people will pay more in tax and spending cuts of £30bn.

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The chancellor said his plans would help get the economy “on an even keel”, but added: “Over the next two years it is going to be challenging. But I think people want a government that is taking difficult decisions, has a plan that will bring down inflation, stop those big rises in the cost of energy bills and the weekly shop, and at the same time is taking measures to get through this difficult period.”

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We’ll bring you the latest news and reactions on the autumn statement. Here’s what’s coming up today:

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9am: The Resolution Foundation will publish its take on Hunt’s measures.

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10.30am: The Institute for Fiscal Studies will present its findings.

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1pm: The Institute for Government has an autumn statement event, which will be attended by the OBR’s Richard Hughes.

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Key events

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IFS director Paul Johnson has been pressed by journalists in the Q&A what the “economic own goals” he alluded to in his opening remarks are.

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He said they include the following:

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Slashing investment spending in 2010, announced by last Labour government but continued by George Osborne. “Not a good way to get growth,” he said.

Cutting spending on education especially “huge cuts” to vocational and further education but also schools. Although schools spending is going up, FE didn’t get a mention in the autumn statement.

Brexit “very clearly” – economically speaking that has been “very bad news indeed” and continues to be, especially because of the hard Brexit and distancing from single market.

The mini-budget “obviously didn’t help” – “another large own goal”.