Britons face the largest fall in living standards on record as the latest iteration of the Tory government slashes spending and raises taxes in an effort to win back the confidence of financial markets.
UK Chancellor Jeremy Hunt on Thursday announced the freezing of income tax allowances and lowered the threshold at which people start to pay the highest rate of income tax, in order to close a £55 billion hole in the public finances. He also announced around £30 billion in spending cuts and another £25 billion in tax hikes.
Hunt said the measures would reassure markets that the government and the Bank of England are now working in “lockstep”.
But contrary to suggestions floated when Liz Truss was prime minister, Hunt announced a 10% increase in the state pension, benefits and tax credits — in line with September’s inflation figure — and an increase in the national living wage to £10.42 an hour for those aged 23 and above. An increase below inflation had previously been mooted in order to save money.
Hunt also — memo Jim Chalmers — confirmed a substantial increase to windfall taxes on the profits of oil and gas companies and additional investment in schools and the National Health Service.
The bleaker news was from the independent Office for Budget Responsibility (OBR). It estimates that the UK economy is in recession now and that GDP will contract by 1.4% in 2023, while inflation is predicted to average 9.1% this year and 7.4% next year.
And the OBR had grimmer news about what could happen to UK living standards. It says the country will suffer the largest fall in living standards since records began, with real household disposable income (RHDI), a measure of living standards, projected to fall by 4.3% in 2022-23, the largest single-year decline since the Office for National Statistics began recording in 1956-57. This will be followed by the second-largest fall of 2.8% the following year, and the cumulative decline of 7.1% from 2021-22 to 2023-24 takes RHDI to its lowest point since 2014.
“Rising prices erode real wages and reduce living standards by 7% in total over the two financial years to 2023-24 (wiping out the previous eight years’ growth), despite over £100 billion of additional government support,” the OBR said.
By 2027-28, RHDI is set to recover to its 2021-22 level, but will remain more than 1% below its pre-pandemic level.
It means Britons will be paying for a decade of Tory incompetence, ideological obsession, Toby Jug nationalism and internecine warfare for a long time to come. The OBR didn’t spare the feelings of Brexiteers in its assessment:
Near-term growth in exports and imports is lower than in our March forecast as slowing global GDP growth hits exports and a weaker outlook for consumption and investment weighs on imports. Our trade forecast reflects our assumption that Brexit will result in the UK’s trade intensity being 15% lower in the long run than if the UK had remained in the EU. The latest evidence suggests that Brexit has had a significant adverse impact on UK trade, via reducing both overall trade volumes and the number of trading relationships between UK and EU firms.
“People have had enough of experts,” Tory Brexit supporter Michael Gove famously said during the Leave debate. Turns out the experts were right. Brexit and years of rank ineptitude have helped reduce the UK economy to the butt of jokes for those not forced to live in it, and to a country of real and major decline in living standards. The economy that Thatcher’s neoliberal shock treatment created, and the fairer version that Tony Blair presided over, has been run into the ground, requiring a painful rebuilding process that will take years of difficult decisions — not just by politicians but by Britons themselves.
