The morning after Chancellor Rachel Reeves's budget has brought sobering analysis, with a leading think tank warning that the monumental task of repairing the UK's public finances remains far from finished.
Fiscal Drag and Future Austerity
The Resolution Foundation has released its overnight assessment of the fiscal event, painting a picture of pre-election austerity and significant tax increases that are now pencilled in. While the Chancellor introduced large, back-loaded tax rises expected to raise £26 billion, extra spending measures kicking in sooner mean that UK debt is on track to be higher than forecast in March.
In a notable finding, the analysis reveals that less wealthy families would actually be financially better off if the Chancellor had broken her manifesto pledges and explicitly raised income tax. Instead, the strategy of freezing tax thresholds for longer and relying on 'fiscal drag' to collect more revenue as wages rise has left millions of low-to-middle earners worse off.
Clearing the Hurdles: A Mixed Report Card
Ruth Curtice, Chief Executive of the Resolution Foundation, outlined the three crucial hurdles the budget needed to clear. She stated the Chancellor was "front-footed – and front-loaded – on cost of living support," highlighting that over half a million larger families will receive a major income boost next spring. Furthermore, typical energy bills will be cut by around £130 annually for the next three years, though this support is set to fade away afterwards.
Ms Curtice acknowledged "sensible tax reforms" that would help level up the tax treatment of different types of income. However, she pointed out the irony that sticking to manifesto tax pledges has ultimately cost millions. The think tank also confirmed that the Chancellor has more than doubled the headroom against her fiscal rules, taking steps to repair the public finances. Yet, appearances can be deceiving.
Debt Up, Growth Down: The Road Ahead
The Foundation's report delivers a stark warning: "Debt is up and most of the fiscal repair job has been put on hold for three years." One critical hurdle that remains unaddressed is boosting economic growth, which has been downgraded by the Office for Budget Responsibility (OBR), along with the outlook for living standards.
Until this fundamental challenge is tackled, the UK can expect "plenty more bracing Budgets" in the future. The agenda for further scrutiny includes a Resolution Foundation event at 9am GMT to discuss what the budget means for the public, financial markets, and the cost of living, followed by an analysis presentation from the Institute for Fiscal Studies (IFS) between 10:30am and 12:00pm GMT.
