Introduction: UK’s fiscal repair job not complete after budget
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
It’s the morning after the budget, a time when the real story behind the fiscal event often emerges.
And today, the Resolution Foundation is warning that the job of repairing the UK’s public finance is “far from complete”, and that major tax rises and cuts to public services are coming down the line.
The think tank has issued its overnight analysis of Rachel Reeves’s budget, which shows that pre-election austerity and tax rises are both pencilled in.
And while those back-loaded tax rises are large (bringing in £26bn), extra spending kicking in sooner, so UK debt is on track to be higher than forecast in March.
Notably, Resolution Foundation also find that less wealthy families would be better off if the chancellor had simply broken her manifesto pledges and raised income tax, rather than simply freezing the thresholds for longer and relying on ‘fiscal drag’ to take more tax off people as their wages rise.
Ruth Curtice, chief executive of the Resolution Foundation, says:
“The Chancellor needed to clear three crucial hurdles in her Budget – to ease cost of living pressures, tax smartly and repair the public finances.
“The Chancellor was front-footed – and front-loaded – on cost of living support. Over half a million larger families will get a major income boost next spring, while typical energy bills will be cut by around £130 annually for the next three years, though support then fades away.
“Sensible tax reforms will also help to level up the tax treatment of income. But, ironically, sticking to her manifesto tax pledge has cost millions of low-to-middle earners, who would have been better off with their tax rates rising than their thresholds being frozen.
“By more than doubling the headroom against her fiscal rules, the Chancellor has taken steps to repair the public finances, too. But appearances can be deceiving. Debt is up and most of the fiscal repair job has been put on hold for three years.
“One hurdle that remains to be cleared is boosting growth – which has been downgraded by the OBR, along with the outlook for living standards. Until that challenge is taken on, we can expect plenty more bracing Budgets.”
The agenda
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9am GMT: Resolution Foundation event: ‘what the budget means for the public, financial markets and the cost of living’
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10am GMT: Eurozone economic sentiment index
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10:30am – 12:00pm GMT: IFS to present its analysis of the budget
Key events
Resolution Foundation’s overnight analysis: the key points
Here are the key points from Resolution Foundation’s overnight analysis:
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Poorer working age families protected most, richer pensioners spared the worst. Policies announced in this Parliament have been progressive, particularly for working-age households. The poorest half of families have gained £90 a year on average, compared to losses of £1,000 for the richest half. It was less progressive for pensioners however, with the poorest half losing £220 on average, while the richest half lost £680.
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The manifesto tax pledge has cost working people... Having previously hinted at raising Income Tax rates, the Chancellor chose instead to freeze personal tax thresholds for three more years. But raising all rates by 1p would have been less costly than freezing thresholds for anyone with an income below £35,000. Indeed, all but the top ten per cent of the income distribution are worse off because of opting for threshold freezes over rate rises (which raise similar amounts of revenue).
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…But abolishing the two-child limit helps working families. Three-in-five families set to benefit from its scrapping include at least one person in work. Overall, 560,000 families will gain an average of £5,310 in 2029-30.
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Pre-election austerity has been pencilled in… The departmental spending cuts announced in 2029-30, coupled with the Government’s commitment to raise health and defence spending and protect per pupil school funding, imply £6.4 billion of cuts to other departments like the Home Office, Justice and local government. Cuts of this nature would be equivalent to 88 per cent of the average annual cuts made during the austerity years (2009-10 to 2018-19).
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…As have pre-election tax rises. Nearly three-quarters of the £77 billion of extra tax over the next five years (2026-27 to 2030-31) is coming after April 2029, with £26 billion in 2029-30 alone.
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Debt is being driven up, not down. Reducing the country’s debt was cited as one of the Chancellor’s key priorities. But debt is rising over the forecast, and higher than forecast in March. For example, Public Sector Net Financial Liabilities (PSNLF) is rising as a share of GDP over this Parliament – from 81.3 per cent in 2024-25 to 83.7 per cent in 2028-29, before falling to 82.2 per cent in 2030-31.
Introduction: UK’s fiscal repair job not complete after budget
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
It’s the morning after the budget, a time when the real story behind the fiscal event often emerges.
And today, the Resolution Foundation is warning that the job of repairing the UK’s public finance is “far from complete”, and that major tax rises and cuts to public services are coming down the line.
The think tank has issued its overnight analysis of Rachel Reeves’s budget, which shows that pre-election austerity and tax rises are both pencilled in.
And while those back-loaded tax rises are large (bringing in £26bn), extra spending kicking in sooner, so UK debt is on track to be higher than forecast in March.
Notably, Resolution Foundation also find that less wealthy families would be better off if the chancellor had simply broken her manifesto pledges and raised income tax, rather than simply freezing the thresholds for longer and relying on ‘fiscal drag’ to take more tax off people as their wages rise.
Ruth Curtice, chief executive of the Resolution Foundation, says:
“The Chancellor needed to clear three crucial hurdles in her Budget – to ease cost of living pressures, tax smartly and repair the public finances.
“The Chancellor was front-footed – and front-loaded – on cost of living support. Over half a million larger families will get a major income boost next spring, while typical energy bills will be cut by around £130 annually for the next three years, though support then fades away.
“Sensible tax reforms will also help to level up the tax treatment of income. But, ironically, sticking to her manifesto tax pledge has cost millions of low-to-middle earners, who would have been better off with their tax rates rising than their thresholds being frozen.
“By more than doubling the headroom against her fiscal rules, the Chancellor has taken steps to repair the public finances, too. But appearances can be deceiving. Debt is up and most of the fiscal repair job has been put on hold for three years.
“One hurdle that remains to be cleared is boosting growth – which has been downgraded by the OBR, along with the outlook for living standards. Until that challenge is taken on, we can expect plenty more bracing Budgets.”
The agenda
-
9am GMT: Resolution Foundation event: ‘what the budget means for the public, financial markets and the cost of living’
-
10am GMT: Eurozone economic sentiment index
-
10:30am – 12:00pm GMT: IFS to present its analysis of the budget
