Following the recent Budget announcement, the Institute for Fiscal Studies (IFS) has reported a modest expected increase in disposable income for households. According to the IFS, analysis from the Office for Budget Responsibility (OBR) projects that average disposable income will rise by only 0.5% annually over the next five years. Disposable income represents the funds available for spending after taxes have been deducted.
IFS director Helen Miller noted that this growth rate is disappointing compared to historical averages of over 2% per year from the mid-1980s to mid-2000s. The IFS also indicated that the average disposable income per person is anticipated to increase by nearly £104 annually for the next four years, based on current inflation forecasts. Miller characterized the Budget as significant, involving notable increases in tax, spending, and borrowing, while highlighting that economic conditions remain stagnant post-Budget.
The government faces criticism for potentially breaching its election promise not to raise taxes for working individuals. Labour’s previous manifesto had committed to not increasing National Insurance, Income Tax, or VAT rates. In response to this, Chancellor Rachel Reeves announced an extension of the income tax threshold freeze for another three years and a cap on pension contributions starting in 2029, which some view as a violation of the manifesto pledge.
Prime Minister Sir Keir Starmer maintained that the Labour Party has fulfilled many of its manifesto commitments but acknowledged the need for all citizens to contribute to fiscal solutions. He emphasized his intent to address the cost of living as a priority. Further, Reeves defended her approach, stating that while her policies would impact working individuals, other measures, such as tax increases on online gambling and high-value properties, would mitigate the burden.
In the lead-up to the Budget, there were concerns about the UK’s financial status and the potential gaps in meeting fiscal borrowing rules. Despite predictions of a challenging economic outlook, Miller noted that the OBR’s adjustments to forecasts were minimal and questioned the effectiveness of the Chancellor’s strategy in promoting economic growth.
Source: https://www.bbc.com/news/articles/c75vwevr652o?at_medium=RSS&at_campaign=rss