Households face ‘dismal’ rise in spending power, says IFS

The Institute for Fiscal Studies (IFS) has expressed concerns about the impact of the recent Budget on households’ disposable income. According to the IFS, the government’s tax and spending plans are expected to result in only a 0.5% annual increase in average disposable income over the next five years. This is a significant drop compared to the historical average of over 2% per year from the mid-1980s to mid-2000s.

Helen Miller, director of the IFS, described the growth in disposable income as “truly dismal” and highlighted the disappointing nature of the current economic outlook. She noted that the Budget included substantial increases in taxes, spending, and borrowing, which could further strain households’ finances.

The IFS projects that average disposable income per person will rise by around £104 per year for the next four years, based on current inflation forecasts. Despite these modest increases, Miller emphasized that the UK continues to face challenges such as lackluster economic growth and stagnant living standards.

Criticism has been directed at the government for potentially breaking its election pledge not to raise taxes on working people. The Budget introduced measures like extending the freeze on income tax thresholds and imposing a cap on pension contributions, which some argue contradict Labour’s manifesto promises.

Chancellor Rachel Reeves defended the Budget decisions, stating that the changes were necessary to address fiscal pressures and fund essential services like the NHS. She acknowledged the impact on working people but emphasized the government’s efforts to minimize the burden through other tax changes.

In response to the Budget analysis, Miller suggested that focusing on economic growth should have been a priority for the government. She argued that raising taxes significantly could hinder growth prospects and advocated for tax system reforms instead.

Overall, the IFS’s assessment of the Budget underscores the challenges facing households in the coming years. With disposable income growth expected to remain meager, policymakers will need to carefully balance fiscal decisions to support economic recovery and improve living standards.