UK has scored ‘a series of economic own goals’, Institute for Fiscal Studies says after the autumn statement
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The British people “just got a lot poorer” after a series of “economic own goals” that have made a rebound in the economy much more difficult than it might have been, a leading thinktank has said.
In his stance about the chancellor’s autumn statement, Paul Johnson, the director of the Institute for Fiscal Studies (IFS), said the government was “reaping the costs of a long-term failure to grow the economy”, along with an ageing population and high levels of historic borrowing.
Jeremy Hunt’s statement on Thursday revealed that the UK was already in a recession that is likely to carry on for more than a year and take 2% off economic output. Johnson said:
“The truth is we just got a lot poorer. We are in for a long, hard, unpleasant journey; a journey that has been made more arduous than it might have been by a series of economic own goals. Mr. Hunt appears to have recognized this. After years of cakeism, his colleagues, the opposition, and we the voters need to take that fact on board, too.”
Asked to specify what he meant by “own goals”, Johnson said these included “reducing investment spending”, a decision made by several governments, and reducing spending on vocational and further education. Johnson responded:
“Very clearly Brexit was an economic own goal. Economically speaking that has been very bad news indeed. Obviously, the mini-budget of a couple of months ago didn’t help. In fact, that was another very large own goal.”
In a different assessment, the Resolution Foundation said the outlook for living standards was “truly grim”. The weak forecast for income and soaring inflation means that wages “will not return to their 2008 level until 2027”.
Had wages increased at the same pace as prior to the great financial crisis in 2008, they would be £15,000 a year higher. There has been a “19-year pay downturn”, the thinktank said.
Living standards are forecasted to drop by 7% over the next two years, according to the independent spending watchdog, the Office for Budget Responsibility. The IFS said this would wrap up a “dismal decade” for economic growth and fend off progress on household spending power to 2013 levels.
Amid the ominous warnings on the long-term outlook for the UK, the IFS railed against the chancellor’s decision to put back social care plans. Johnson said: “It is awful that the social care reforms will not now be implemented next year as planned,” adding that he was worried the two-year delay “amounts to a death knell” for the changes.
He stated:
“Government should not be making and then reneging on promises like this which matter so much to vulnerable people.”
Projections also show that there will be no going back to the pre-financial crisis rate of income growth either.
“We’re heading for another lost decade of income growth,” said Xiaowei Xu, a senior research economist at the IFS.
Johnson said those on middle incomes would experience the immediate greatest hit from tax increases in the autumn statement. “Middle England is in for a shock,” he said.
Benefits are also trailing behind surging living costs overall, the IFS noted. Xu stated:
“It won’t be until April 2024 when inflation subsides that real benefit levels actually catch up to their pre-pandemic level.”
The IFS and the Resolution Foundation have questioned the credibility of broad spending cuts needed to balance the books in the years following the next general election, by 2027-28.
Buy Crypto NowJohnson said the chancellor’s effort to delay the pain of cuts for a couple of years in the hope that the economic situation becomes better was a gamble.
“Things could turn out worse than predicted. If so, the pain to come will be even greater.”
Fiscal challenges in the coming few years would be harsh whether or not the economic growth picks up speed, the thinktank said.
“Borrowing is going to be relatively high into the foreseeable future. Tax is going to be very high indeed,” Johnson said.
