Chancellor Reverses The Policy Priorities Of The 2010s, Rehashes Its Austerity, And Records The First Ever Polling-day-to-polling-day Fall In Living Standards

9th March 2024

The likely last Budget before the General Election showed that this has been a parliament of flatlining growth, falling living standards, and notable redistribution from the old and the rich to the young and the poor, according to the Resolution Foundation's overnight analysis of the 2024 Spring Budget.

The Foundation notes that the approach taken by the Chancellor in this Budget and recent fiscal events is in marked contrast to the approach taken in the 2010s. Then policy choices focused support on pensioners and benefit cuts on poorer working-age households. But policy choices announced during this Parliament take a very different approach, shifting support from the rich and the old to the young and the poor.

Key findings from the Foundation’s overnight analysis include:

Filling out the tax sandwich... Fresh reductions in National Insurance and Fuel Duty, coupled with previously announced tax threshold freezes, mean a net tax cut of £9 billion is taking effect in the election year. But this is dwarfed by the estimated £27 billion of tax rises that came into effect last year (2023-24) and the £19 billion that are coming in after the election (2025-27).

…by throwing fiscal caution to the wind. The Chancellor’s fiscal headroom against his fiscal rules is the second lowest on record, just a third of the average level seen since 2010. But this is not because his fiscal rules are strict - in fact, the plans in this Budget would violate three out of the four sets of such rules followed by Conservative Chancellors since 2010.

Shifting state support from the rich to the poor… While 78 per cent of the personal tax cuts announced in the 2024 Spring Budget go to the richest half of households, the Foundation’s analysis of all tax and benefit policies announced in this parliament – including changes to National Insurance, Income Tax, pensions tax, non-doms tax and Capital Gains Tax, reductions to the taper rate in Universal Credit, and duty freezes – show a very different picture. Typical households are set to gain £420 a year on average, while the poorest fifth gain £840 and the richest fifth lose an average of £1,500.

And from pensioners to millennials…. The Foundation’s analysis of these same policy changes across the age distribution shows that households headed by someone aged 18-45 will gain £590 on average, compared to an average loss of £770 for those aged 66 and over.

Britain’s £14,000 wage depression… Despite the Office for Budget Responsibility reducing its forecast for inflation, real average wages are only set to regain their 2008 levels in 2026, a staggering near-two lost decades of pay growth. Had pay instead continued along its pre-financial crisis path over this period, the average worker in 2023 would have been around £14,000 better off.

….and a record low for living standards. Across this Parliament (between 2019 and 2025), real household disposable income (RHDI) is set to fall by 0.9 per cent – the first parliament in modern history to see a fall in living standards.

Torsten Bell, Chief Executive of the Resolution Foundation, said, "A pre-election Budget produced another round of pre-election tax cuts. Who could have seen that coming?

“To deliver them, the Chancellor has continued to throw fiscal caution to the wind, cutting his fiscal headroom to just a third of the average level seen since 2010. He would fail to meet three out of the four sets of fiscal rules used by his Conservative predecessors since 2010.

“It has been a frenetic few years for tax policy making, with huge rises and cuts announced in quick succession. Middle earners have come out on top, while taxpayers earning below £26,000 or over £60,000 will lose out. The biggest group of losers are pensioners, who face an £8 billion collective hit.

“Looking at all policy changes announced this parliament reinforces the sense that the Government has reversed course from the approach that dominated during the 2010s. Back then, support was focused on pensioners and takeaways on poorer, younger households. This time it is those aged over 65 and on the highest incomes who are set to lose most.

“But while tax and benefit strategies have been reversed, spending priorities have been rehashed. The £19 billion of cuts to unprotected public services after the next election are three-quarters the size of those delivered in the early 2010s. The idea that such cuts can be delivered in the face of already faltering public services is a fiscal fiction.

“Budgets are always a big day for Westminster, but the big picture for Britain has not changed at all. This remains a country where taxes are heading up not down, and one where incomes are stagnating.

“Big tax cuts may or may not affect the outcome of that election, but the task for whoever wins is huge. They will need to both wrestle with implausible spending cuts, and also restart sustained economic growth – the only route to end Britain’s stagnation."