IFS Researchers initial response
After the chancellor delivered his Autumn Budget, the Office for Budget Responsibility (OBR) published a new set of forecasts for public finances and economies.
The initial reactions of IFS have been provided below:
“The Government is now planning to spend more on public services and to have a more generous system of universal credit than it was intending pre-pandemic. The increases in universal credit for those in paid work are occurring alongside increases in the national living wage. This means that the Budget and Spending Review are much more similar to Gordon Brown’s than to George Osborne’s. To help fund the spending increases, the Chancellor confirmed big tax rises: this year has seen the biggest set of tax-raising measures since 1993. It now looks like a large part of those tax rises is to be spent rather than being entirely used to reduce borrowing as originally announced. If implemented, this might be sufficient to push borrowing below that expected prior to the pandemic and to see debt falling as a share of national income. Of course, there is huge uncertainty over the outlook for the economy and it remains to be seen whether the tax rises will actually be implemented as announced. The coming year will also be a difficult one for living standards. For example, for middle earners rising inflation and tax rises mean their real take-home pay is set to fall by around 1%.”
“Today’s announced an increase in the National Living Wage to £9.50 per hour represents the sixth consecutive year of substantial minimum wage rises. But when thinking about its effects on low-income households, there are three things to keep in mind. First, while this boosts earnings for full-time minimum wage workers by over £1,000 per year, those on Universal Credit will see their disposable income go up by just £250 because their taxes rise and benefit receipt falls as their earnings increase. Second, minimum wage workers are most heavily concentrated around the middle of the household income distribution – not the bottom – often because they live with a higher earning partner. That means that the minimum wage is a very imperfect tool to offset cuts to benefits, which are much more targeted at the poorest households. Third, rising inflation will also blunt the real-terms value of this minimum wage hike – and of course, while prices are rising now, the increase in the minimum wage won’t kick in until April.”Contact us for all corporate accounting and tax services
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