In a critical verdict for the chancellor, it said voters may not get much feelgood factor despite the chancellor pledging a “new age of optimism” as the country emerges from the emergency phase of the coronavirus pandemic. Separate research from the New Economics Foundation showed the poorest fifth of households would still be £380 a year worse off despite the chancellor’s decision to partly reverse cuts to universal credit, compared with keeping the £20 a week uplift scrapped earlier this month.Ĭoming amid high levels of inflation, the £40bn of tax increases announced by Sunak for this year would cause “real pain” for low-income households, said the IFS. The Tories have no plan to tackle the cost-of-living crisis, no plan to shift the unfair taxes they’ve hit working people with and no plan for growth.” Rachel Reeves, the shadow chancellor, said: “This is a budget hammering working people, while giving banks a tax cut. Labour and the trade unions said Sunak had taken insufficient steps to get wages rising across the economy at a difficult moment for UK households. It comes after a decade of sluggish real wage growth across several advanced economies, held back by lacklustre economic productivity since the 2008 financial crisis. Official forecasts from the Office for Budget Responsibility show high levels of inflation will weigh on households’ finances this year and next, before real incomes then rise by just 1.3% a year on average up until 2026. Combined with high inflation and weak earnings growth, this would lead to a “flat recovery in household living standards” as the pandemic recedes.Īt the budget on Wednesday, the chancellor partly reversed cuts to universal credit benefits in response to mounting concerns over the squeeze on low-income workers this winter, and granted a £150bn rise in spending limits for Whitehall departments to draw a line under austerity.ĭisruption linked to the pandemic and Covid has pushed up inflation to the second-highest level in a decade in recent months, with a further increase in the cost of living expected this winter amid soaring energy bills and the rising cost of a weekly shop. In a highly critical reception for Sunak’s budget and three-year spending review, the Resolution Foundation said the average household would pay £3,000 more in taxes as a result of the budget. “The gap between what we might have expected on the basis of pre-financial crisis trends and what is actually happening is staggering,” he said. Paul Johnson, the IFS director, said the real-terms damage to household incomes was unprecedented in modern history, with weaker economic growth and higher inflation to blame.