UK Budget tax cuts won't offset rising prices, warns think tank

A leading think tank, the Institute for Fiscal Studies (IFS), has cautioned that tax cuts announced in Wednesday's Budget won't fully offset the impact of tax increases and rising prices, as per a BBC report.

Regardless of a $12.74 billion cut to National Insurance announced by Chancellor Jeremy Hunt, the IFS predicts that households will still be worse off at the upcoming election than they were at the start of the current parliament.

The chancellor's strategy of tax cuts is part of a long-term reform plan aimed at shifting the tax burden away from workers, encouraging employment.

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While the National Insurance cut is expected to benefit millions of workers, the IFS highlights that it only partially reverses the effects of other tax changes, such as freezing tax thresholds, which have resulted in a higher proportion of salaries being taken in tax.

According to the IFS, the tax changes will lead to varying patterns of gains and losses depending on income.

While an average earner may enjoy a tax cut of about $433.14 in the upcoming financial year, the gains diminish over time, with the average earner expected to be only $178.35 better off by 2027.

The think tank also notes that for every $1.27 given back to workers through the National Insurance cuts, $1.66 to $2.42 will have been taken away due to threshold changes between 2021 and 2024, indicating a net loss for taxpayers.

Labour leader Keir Starmer has criticised the government's strategy, accusing it of giving with one hand and taking even more with the other.

With an eye on the upcoming general election, the state of the economy and individuals' personal finances is under scrutiny.

The Conservatives hope slight upgrades to growth forecasts provided by the Office for Budget Responsibility will help change the narrative, but the IFS warns that overall living standards remain "dismal".

While the government's measures are expected to slightly increase borrowing in the next financial year, the Office for Budget Responsibility predicts borrowing to remain broadly in line with previous forecasts.

However, the country's debt as a proportion of GDP is set to rise over the next four years before marginally decreasing, with debt still expected to be 92.9 per cent of GDP in 2028-29, higher than the 89 per cent expected this year.