Analysis of the Budget has found families are now projected to be in the early stages of the longest period of disposable income decline in more than 60 years.
The Resolution Foundation, a think tank which focuses on how to bolster living standards, said Philip Hammond’s speech painted a bleak outlook as the country gets to grips with a slowing economy linked to Brexit.
Its report, titled ‘Freshly Squeezed’, cited updated forecasts from the Office for Budget Responsibility (OBR) which it said showed that the economy was on course to be £42bn smaller in 2022 compared with the projections in March.
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The organisation calculated individual disposable incomes would be £540 lower in 2023 than was being forecast in March, while annual pay would be down around £1,000.
It said: “The current income squeeze is set to be longer (though shallower) than the post-crash squeeze, with real household disposable incomes set to fall for an unprecedented 19 successive quarters between 2015 and 2020.
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“Despite welcome but relatively small shifts on Universal Credit, tax and benefit policies announced since [the] summer Budget [of] 2015 are set to put downward pressure on living standards and upward pressure on inequality.
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“The poorest third of households are set for an average loss of £715 a year by the end of the parliament, while the richest third gain an average of £185.”
In terms of the public finances, it claimed the Chancellor “had all but abandoned” his aim of achieving a budget surplus by the middle of the next decade because of extra spending and borrowing.
The report said that while his focus on housing was welcome, it criticised the stamp duty measures for first-time buyers.
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The tax is now removed for purchases up to £300,000 and on the first £300,000 of the purchase price of properties worth up to £500,000.
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But the foundation said it would cost £160,000 for every additional home owner created, “sufficient for the Chancellor to have instead simply given people typically priced properties in over a quarter of local authorities in England and Wales”.
Its director, Torsten Bell, said: “Following years of incremental changes, yesterday the OBR handed down the mother of all economic downgrades pushing up borrowing for the Treasury.
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“While Philip Hammond chose to take a relaxed approach to additional borrowing, families are unlikely to do so when it comes to the deeply troubling outlook for their living standards that the Budget numbers set out.”
Mr Hammond used an interview with Sky News on Thursday to address some of the issues raised in the report.
Responding to claims his stamp duty measures will push up prices, he said the Government’s efforts to accelerate building would boost supply and help bring prices down.
He also denied any suggestion Britain was now the ‘sick man of Europe’ given the OBR’s productivity and wider growth downgrades.