Warning of hit to public services after tax cuts

6 months ago 199

A couple looking at bills at homeImage source, Getty Images

By Tom Espiner & Daniel Thomas

Business reporters, BBC News

The tax cuts in the Autumn Statement will be paid for by the biggest real-terms cut to spending for some government departments since the depths of austerity, a think tank has warned.

The Resolution Foundation said about £17bn would go on cutting National Insurance and other taxes, but it would be at the expense of public services.

It also said households would be £1,900 poorer by the end of this parliament.

But the chancellor said his plans would put "more money in people's pockets".

On Wednesday, Jeremy Hunt said he would cut National Insurance from 12% to 10% from January, at a cost of £10bn.

He also extended or made permanent several tax breaks for business.

The Resolution Foundation, which campaigns for better living standards for those on low and middle incomes, said the chancellor was able to do this because he had not increased spending on public services.

When factoring in rising prices, that meant that unprotected departments - such as justice, local government and the Home Office - would face budget cuts of about £17bn by 2027-28.

The think tank estimates that the overall impact on affected departments would be the deepest since the period of austerity in 2010-15 that followed the financial crisis.

"The idea that there is as much scope to cut spending today as there was in 2010, given the deterioration of public services is far-fetched," it said.

The influential Institute for Fiscal Studies (IFS) think tank agreed that departmental spending plans were "not being sufficiently topped up in response" to inflation, resulting in lower real-terms spending on public services "both now and in the future".

It added that effectively, Mr Hunt's planned tax cuts would be "paid for by planned real cuts in public service spending".

'Tax-cutting rhetoric'

The Resolution Foundation also said the government would set a "grim" new record for living standards going down in this parliament.

It said that despite the "tax-cutting rhetoric" of the Autumn Statement, there had already been £90bn of tax rises announced by the government - so taxes would rise by the equivalent of £4,300 per household between 2019-20 and 2028-29.

It added that people's purchasing power had been stagnating for 20 years, and that recent pay rises just reflected the reality of rising prices.

On Wednesday, the Office for Budget Responsibility (OBR) said that the UK's tax burden was going up "to its highest level in the post-war era".

"Over the medium term, the combination of higher inflation and frozen tax thresholds means that the tax burden for this country is going up," boss Richard Hughes said.

Speaking to the BBC on Thursday, Mr Hunt said: "Taxes have gone up, but I want to start bringing them down."

He said the government had been right to help families during the coronavirus pandemic with the furlough scheme, and with energy bills during the cost of living crisis.

He added that he had chosen to cut National Insurance to get more people into work, and that the measure would help fill one in 10 job vacancies.

Mr Hunt also said the government planned to boost the economy by making business more competitive.

"If we want to bring the tax burden down, we have to grow the economy," he said.

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