Chancellor Rishi Sunak’s high-spending Budget will leave millions of Britons worse off, according to new forecasts.
The Chancellor has unveiled £150bn of spending that will raise taxes to their highest level as a share of GDP since 1951. Estimates of higher inflation, stagnating pay and rising mortgage payments show the impact this will have on household finances. Here are five charts that show the Budget’s squeeze on Britons.
Rising inflation means household incomes will not stretch as far. In its central forecast, the Office for Budget Responsibility has estimated inflation will rise to 4.4pc next year, driven by supply chain disruptions and record-high energy prices.
However, the cost of living could rise even more sharply. The OBR modelled two starker scenarios, where inflationary pressures built as a result of either a continued climb in the cost of energy and other utilities, or higher wages. In both cases inflation, measured according to the consumer price index, would surge to 5.4pc, its highest level since March 1992.
That would eat into the value of household savings pots, as no conventional savings accounts offer interest rates that match inflation even at its current level of 3.1pc. The highest paying easy-access account, from the Family Building Society, pays 0.65pc, while even the best five-year fixed-rate bond pays just 2.05pc.
Inflation will hit even harder as wage growth fails to keep pace with rising prices. The Institute for Fiscal Studies predicted that disposable income would grow by just 0.8pc every year for the next five years, “well below the historical average”.
Since 2008 pay has continued to stagnate, with the growth in salaries that was predicted prior to the financial crisis failing to materialise. The IFS has calculated that average disposable incomes would stand 28pc below pre-financial crisis trends in five years’ time, with real wages £9,000 lower in 2026.
Mortgage payments to climb
Homeowners should brace for bigger mortgage repayments. The current average mortgage rate is 2pc, but the OBR expects that to increase to 2.2pc by the end of 2022 and 2.4pc towards the end of the following year.
Borrowers have nabbed cheap deals on the back of low interest rates this year, but the prospect of an interest rate rise by the Bank of England has prompted banks and building societies to pull their best offers from the market.
Homeowners who picked a two-year fixed deal this summer could end up paying hundreds of pounds more in repayments when refinancing onto higher rates.
More paying death duty
Thousands more bereaved families will be forced to pay a 40pc tax on their inheritance. The OBR expects the number of people paying the levy to more than double compared to pre-pandemic levels in the next five years.
The death tax is now forecast to cost families £7.6bn by 2026, up from £6.6bn estimated in March, and net the Government an extra £2.7bn in revenue.
The number of estates subjected to inheritance tax will reach close to 50,000 annually by 2026, up from 22,000 before the pandemic, according to the OBR. Higher-than-expected inflation, booming house prices and a five-year freeze in tax breaks announced at the spring Budget have forced the official forecaster to dramatically revise its expectations.
Highest tax burden in 70 years
Mr Sunak’s high-spending Budget has put Britain on course for its highest taxes as a proportion of GDP since the 1950s. The OBR has forecast that tax will hit 36.2pc of GDP by 2026-27, its highest level since 1951.
The Resolution Foundation, a thinktank, has warned that households will face a £3,000 rise in their tax bills by the mid-2020s as a result, arguing the Chancellor’s plans move Britain towards a “new high tax, big state economy”.
Middle income households will face a 2pc hit to their incomes from the Budget changes and the richest fifth will endure a 3.1pc squeeze, according to the Resolution Foundation.
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