Households are worse off since the last election, says the IFS

The Institute for Fiscal Studies (IFS) has reported that households are financially worse off compared to the time before the last election.

They state that recent tax cuts in the Budget do not offset the effects of prior tax increases and inflation.

Chancellor Jeremy Hunt announced a £10 billion reduction in National Insurance but, according to the IFS, this current parliament has seen record tax hikes. Despite this, the chancellor remains positive, citing improved growth forecasts and stating the UK will soon see economic improvements.

Hunt’s National Insurance cut, which follows an earlier reduction, is part of a plan to lower the tax burden on workers. The IFS acknowledges this cut would save many workers, especially those on near-average earnings, approximately £1,000 annually from both reductions.

Nevertheless, the IFS contends these savings partly return what was lost to other tax changes, especially the freezing of tax thresholds that has led to more of people's earnings being taxed.

The IFS detailed different impacts on various income groups; an average earner would see a modest cut initially, but by 2027, the benefit decreases. Paul Johnson, the IFS director, described the overall taxation as a net increase over time, with more tax being collected than returned.

Labour's Sir Keir Starmer criticized the government's approach as giving a little and taking more. The state of the economy is under scrutiny as the country approaches a general election.

The Conservatives are looking to improved but modest growth forecasts from the Office for Budget Responsibility as a positive sign, yet the IFS describes the outlook on living standards as dismal.

They had previously advised against tax cuts without significant growth, warning of potential public spending squeezes, including on local government and the criminal justice system.

Chancellor Hunt defended cuts in public spending, suggesting technological advancements could ease financial strains on services like schools, hospitals, and police. The IFS annually reviews the Budget’s implications for the economy and personal incomes.

New government measures factored in, the OBR anticipates a small borrowing increase next year, then stability, with the country's debt to GDP expected to fall marginally in 2025-26. However, overall debt relative to GDP will remain high at 92.9% by 2028-29.