The Institute for Fiscal Studies has warned that household income will see its biggest fall in generations following the autumn declaration. The think tank warned that growth in living standards had been weak since 2008 and was now set to deteriorate from “worse”. Growth in living standards since 2008 has been extremely weak by historical standards.
As the cost of living crisis came as no surprise, today’s forecast from the Office for Budget Responsibility suggests it will only get worse. This year we expect to see the largest decline in per capita real disposable household income since the late 1940s (4.3%); next year we expect to see the second-largest decline (2.8%). Modest growth is expected again thereafter, but even by 2027-28 we may not have a year since 2015-16 with growth above the pre-2008 average.
Per capita household income in 2027-28 is projected to remain unchanged from 2018-19 and remain 31% below the pre-2008 trend. Governments tend to freeze tax thresholds wherever possible to boost revenue.
All main income tax and social security thresholds for workers have been scheduled to freeze until April 2026, with the Chancellor’s announcement extending this by a further two years to April 2028. A further freeze on estate tax and sales tax registration thresholds has also been added.
Lower wholesale energy prices help the Chancellor, which reduces the cost of energy support measures for households and companies. Announced on 8 September, the Home Energy Price Guarantee (EPG) was expected to cost £31bn by the end of March 2023, but is now expected to cost just £25bn over that period.
Federal Chancellor Hunt has announced that the EPG will no longer support the current level; today he announced that the less generous EPG will apply for a further 12 months (until the end of March 2024) from April 2023, capping typical annual energy bills £3,000 instead of the current £2,500 (plus additional living costs). family, see above).
Overall, the EPG is now expected to cost £38bn over 18 months, while Kwasi Kwarteng’s initial proposal of maintaining £2,500 over 2 years could now cost £55bn.
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