Rishi Sunak’s spring statement will push 1.3 million people – including half a million children – below the poverty line next year while raising tax to the highest level since the second world war, according to leading economists. The chancellor’s spring statement on Wednesday offered some tax cuts, such as 5p-a-litre off fuel duty and a £3,000 increase in the threshold for national insurance contributions, but came in for widespread criticism for failing to support poorer families and other vulnerable groups from the soaring cost of living. Paul Johnson, the director of the Institute for Fiscal Studies, said the chancellor had “proved to be something of a fiscal illusionist” for announcing tax cuts that would not offset other previously announced plans. The Resolution Foundation thinktank said just one in eight workers would have their tax bills fall by the end of this parliament in May 2024, when the rate of income tax would drop by 1p to 19p. “In the face of a cost of living crisis that looks set to make this parliament the worst on record for household incomes, the chancellor came to the box yesterday promising support with the cost of living today, and tax cuts tomorrow,” said Torsten Bell, the thinktank’s chief executive. “The decision not to target support at those hardest hit by rising prices will leave low- and-middle income households painfully exposed.”
The Resolution Foundation said it was the first time there would be such a large increase in the number of people falling into poverty outside of a recession. The Office for Budget Responsibility (OBR) said on Wednesday that inflation would hit a 40-year high of 8.7% in October, fuelling the biggest fall in living standards in any single year since records began in 1956. The foundation’s analysis of Sunak’s spring statement estimates that a typical family will experience a £1,100 decline in income this year, or about 4%, with the poorest households facing a 6% fall.
It also found that only those earning between £49,100 and £50,300 would pay less income tax in 2024-25, and only those earning between £11,000 and £13,500 would pay less tax and national insurance. Of the 31 million people in work, 27 million would pay more in tax and national insurance in 2024-25. “The big picture is that Rishi Sunak has prioritised rebuilding his tax-cutting credentials over supporting the low- to middle-income households who will be hardest hit from the surging cost of living, while also leaving himself flexibility in the years ahead,” Bell said. “Whether this will be sustainable in the face of huge income falls remains to be seen.”