Autumn statement tax cuts favour richest 20%, thinktank analysis finds

Tax cuts worth £20bn in Jeremy Hunt’s autumn statement favoured the richest 20% of earners, undoing much of the progressive policy changes made during the parliament’s first half, a leading thinktank has found.

The top fifth will gain £1,000 on average, five times the gains seen by the bottom 20%, who will be only £200 better off from measures that include a 2p cut in national insurance, according to the Resolution Foundation’s analysis.

The thinktank also found that while earnings are growing faster than previously estimated by the Office for Budget Responsibility (OBR) – the Treasury’s independent economic forecaster – real average earnings adjusted for inflation are not forecast to return to their 2008 peak until 2028 – “a totally unprecedented 20-year pay stagnation”.

The analysis said this parliament was on track to be the first in which real household disposable incomes fall – by 3.1% from December 2019 to January 2025. Households will on average be £1,900 poorer at the end of this parliament than at its start.

In what is widely seen as the opening bid by the chancellor to woo voters before an election next year , Hunt announced on Wednesday that he was able to lift the tax burden after a steep fall in inflation and after the economy had turned a corner.

However, he left in place £90bn of tax rises over the life of the parliament that the thinktank said remain progressive, with the richest fifth of households set to lose £1,100 on average, while the poorest 20% gain an average of £700.

Torsten Bell, chief executive of the Resolution Foundation, said that “despite the tax-cutting rhetoric”, taxes are on course to rise by 4.5% of the UK’s gross domestic product (GDP) between 2019 and 2020 and 2028 to 2029, equivalent to £4,300 a household.

The thinktank praised welfare benefit increases and a lifting of the cap on private rent subsidies after a freeze of several years that had been blamed for thousands of tenants being forced to leave their homes.

However, Bell added that the tax cuts and benefit rises were underpinned by an “implausible” squeeze on public services over the next five years that amounted to a 15% budget reduction in real terms for unprotected departments such as justice and transport.

He said: “Jeremy Hunt yesterday got his pre-election giveaways in early, with an autumn statement offering tax cuts today, at the price of implausible spending cuts tomorrow.

“Well-targeted specifics, addressing problems such as our tax system’s bias against working-age earnings or benefit system’s failure to keep pace with fast-rising rents, were juxtaposed with far less well-designed big picture fiscal choices. Tax-cutting rhetoric clashed with tax-rising reality, and positive steps to encourage business investment combined with a growth sapping hit to public investment.”

Commenting on the fall in real household disposable incomes, Bell said: “Ultimately this reflects the pressures, not only of an upcoming election, but of governing a sicker, older, slower growing Britain, amid an era of far higher interest rates.

“That might be difficult for policymakers, but it’s a disaster for households whose wages are stuck in a totally unprecedented 20-year stagnation. This parliament is set to achieve a truly grim new record: the first in which household incomes will be lower at its end than its beginning.”