A staggering £12bn of welfare cuts are still on their way, a respected economic think-tank has said, as it declared Philip Hammond’s Budget was “not the end of austerity”.
Workers are also facing two “lost decades” of earnings growth as the national debt continues to soar, the Institute for Fiscal Studies (IFS) predicted in a bleak assessment of the Chancellor’s Autumn Statement.
Paul Johnson, Director of the IFS, pointed out almost £12bn of welfare cuts were still to come and, despite a £25bn giveaway, public services outside the NHS still face 7% cuts over the next five years.
Opponents said the analysis laid bare how the Government was “balancing the books on the backs of the poorest”.
“The figures published yesterday imply yet one more year of spending restraint,” he said. “As the years go by, the end of austerity keeps slipping out of view.”
Johnson was also sceptical about Hammond’s aim to build 300,000 homes-a-year by 2020, saying “older, richer people might continue to buy these new properties” and then rent them out to younger people who cannot get on the housing ladder.
The UK’s economic forecasts are also the worst of any G7 country, the IFS said, and the national debt may not return to pre-financial crash levels until “well past the 2060s”.
Average earnings in 2021 look set to be nearly £1,400 lower than forecast in March 2016 - lower in real terms than at the time of the financial crash in 2008.
“We are in danger of losing not just one but getting on for two decades of earnings growth,” said Johnson.
“As the years go by, the end of austerity keeps slipping out of view”
- Paul Johnson, Director of the IFS
The “grim” official forecasts Hammond outlined in his speech mean GDP will be 3.5% lower in 2021 than was forecast less than two years ago and equate to a £65 billion hit to the economy, the IFS said.
Low GDP growth will impact on Britain’s ability to pay off its national debt, said Johnson. The OBR’s decision to downgrade projected annual productivity growth from 1.7% to 1% was “as likely to be too optimistic as to be too pessimistic”, he said.
The UK is growing more slowly than all other advanced economies and projected to experience growth “well behind” all the other G7 countries over the coming years, with the OBR suggesting it will not top 1.6% for the next five years.
“It really is time to start forgetting that for decades anything less than 2% was considered seriously disappointing,” said Johnson.
“The sorts of modest growth rates currently expected imply that, if we were to maintain the deficit at the just over 1% of national income projected for the early 2020s, it would take us until well past the 2060s for debt to fall to its pre-crisis levels of 40% of national income.
“That assumes no recessions for the next half century.”
Johnson said the Chancellor’s cash injection for the NHS, housing and infrastructure would peak at £9bn in 2019/20 but “dissipate very quickly” thereafter.
The planned increases in health spending were “modest in the context of easily the tightest decade for the NHS since its founding”, he said.
Public sector workers outside the NHS “should not be holding their breath in anticipation of an inflation-busting - or perhaps even 1%-busting - pay rise”, as Hammond had set no money aside to pay for it.
“Most areas of public spending still have difficult years ahead,” said Johnson. “Day-to-day spending on public services outside of the NHS is due to fall by yet another 7% over the next five years.”
Hit For First-time Buyers
Hammond’s investment in housing translates into about £1.5bn a year of public spending, said Johnson.
He warned that even if the Chancellor succeeds in increasing house-building to 300,000-a-year by the mid-2020s could mean wealthy people simply buy more homes and rent them out.
While backing the OBR’s assessment that the abolition of stamp duty for most first-time buyers is likely to result in a rise in house prices, Mr Johnson said this did not mean young home-purchasers would be worse off as a result.
Even if the property they buy is slightly more expensive, first-time buyers will be able to obtain larger mortgages as a result of the change, and all the money they spend will go on their property, rather than losing some of it to tax, he said.
Prime Minister Theresa May insisted Hammond’s job was safe after what she told reporters yesterday: “Yes. The Chancellor did a very good job yesterday.”
Stephen Lloyd MP, Liberal Democrat Work and Pensions Spokesperson, commented: “This analysis lays bare the utter inadequacy of the funding announced for Universal Credit in yesterday’s budget.
“The Tories are balancing the books on the backs of the poorest, at a time when inflation and personal debt are rising instead of incomes.
“£12bn worth of cuts aimed at the most vulnerable are still to come, dwarfing the extra £300 million a year promised by the Chancellor.”