Rishi Sunak has “big questions still to answer” with analysis suggesting more needs to be done to tackle the sluggish growth in living standards and a further potential squeeze on the public sector.
The respected Resolution Foundation said the chancellor’s cut of £4 billion a year in public spending would be “challenging to deliver”, and estimated a further £15 billion would be needed by 2025.
This sum would be required to give Mr Sunak “enough fiscal space to credibly see net debt sustainably falling in the face of future recessions”, the think tank warned.
The Chancellor pledged to build a “fairer and more just” country post Covid-19 as he announced plans to repair the nation’s finances.
These included an increase in business profits and the freezing of income tax thresholds which will see more than a million people starting to pay the levy, according to forecasters.
Mr Sunak said “significant decisions” had to be taken, telling MPs: “I recognise they might not be popular. But they are honest.”
Overnight analysis from the Resolution Foundation suggested the average UK wage will be 4.3%, or £1,200, below the pre-crisis path by the middle of the decade and that this parliament will oversee the second slowest growth in living standards on record.
It also said the basic level of benefits will go back to levels last seen in the latter days of Margaret Thatcher and the early John Major years, just as unemployment is due to peak.
Separate estimates from the Joseph Rowntree Foundation said the plans to end the uplift in Universal Credit and Working Tax Credit in September – when the furlough scheme also ends – will see half a million people, including 200,000 children, placed into poverty.
Torsten Bell, chief executive of the Resolution Foundation, said: “The Chancellor has gone big on both support for the recovery now and tax rises in future.
“This is broadly the right approach to take in terms of protecting the economy now, securing a recovery next, and repairing the public finances later.
“But the details of his plans leave serious questions to be answered about whether enough has been done to support households in the recovery to come, how credible it is that further reductions in planned spending can be delivered, and if the UK’s public finances have really been put on a sustainable footing long term.”
The poorest households will see a 7% fall in income when the £20 a week Universal Credit uplift comes to an end, the foundation said, with Mr Bell adding: “There are many more big questions still to answer before the UK fully emerges from its worst downturn in 300 years.”
The Chancellor paid tribute to “all those who have lost their lives to coronavirus” in a post-Budget press conference at Downing Street on Wednesday evening.
“To the family and friends left behind, your loss – felt most acutely in the quietest of moments – must be overwhelming,” he said.
“But I promise you we will meet this moment with the passion and energy it demands, and we will build a fairer and more just country in their memory. Our recovery begins today.”
Mr Sunak told MPs the total package of measures to support the economy – including those already announced – amounted to £407 billion, but warned the unprecedented spending could not continue.
The measures announced by Mr Sunak on Wednesday increase the tax burden from 34% to 35% of gross domestic product (GDP) – a measure of the size of the economy – in 2025-26, “its highest level since Roy Jenkins was chancellor in the late 1960s”, according to the Office for Budget Responsibility (OBR).
The point at which people begin paying income tax will increase by £70 to £12,570 in April, but will be maintained at that level until April 2026, meaning more people will become eligible to pay tax as wages increase.
The 40p rate threshold will increase by £270 to £50,270 and then be frozen, with the measures expected to rake in almost £8.2 billion in 2025-26.
Corporation tax will increase from 19% to 25% in 2023, raising £17.2 billion in 2025-26, although only firms with profits of £250,000 or more will pay the full rate.
The OBR expects the economy to return to its pre-Covid level by the middle of next year, six months earlier than previously forecast as part of a “swifter and more sustained” recovery, largely as a result of the vaccine rollout.
But in five years the economy will still be 3% smaller than it would have been if the pandemic had not struck.
Labour leader Sir Keir Starmer said the Budget was a “quick fix, papering over the cracks” which “didn’t even attempt to rebuild the foundations of our economy or to secure the country’s long-term prosperity”.