Sunak makes ‘right judgement’ to put recovery before tax rises – Resolution Foundation

The Chancellor has made the “right judgement” in his Budget to support economic recovery in the next two years before turning to raising taxes in the middle of the decade, according to analysis from the Resolution Foundation.

However, the think tank has suggested that Rishi Sunak may have “more work to do” in order to plug gaps in support, tackle living standards that have scarred from the COVID-19 crisis, and to avoid another tight squeeze on public services.

The Foundation’s report, titled Spending fast, taxing slow, highlighted the scale of the Chancellor’s crisis spending and planned tax rises, with tax receipts as a share of GDP set to rise to 35% by the middle of the decade – their highest level since 1969.

Resolution Foundation has estimated that around £15bn of further consolidation will be needed by the middle of the decade to give the Chancellor enough fiscal space to “credibly see” net debt sustainably falling in the face of future recessions.

“The Chancellor has gone big on both support for the recovery now and tax rises in future,” commented Resolution Foundation chief executive, Torsten Bell.

“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 think tank also noted that Sunak’s £24bn super-deduction investment allowance looks set to boost business investment in the short-term, but warned that business investment is forecast to be “permanently lower” over the long-term, as a result of the Budget’s corporation tax rise.

Furthermore, while GDP is set to grow by 4% this year, the Foundation’s report is suggesting that real household disposable incomes are actually set to fall marginally – which the think tank said highlights the risk of the recovery failing feed through into living standards while unemployment rises.

“The improving outlook for GDP next year is not set to feed through into a boom for living standards, with unemployment forecast to rise and household incomes to fall,” Bell added.

“Long-term economic scarring also means that this is set to be the worst parliament for living standards growth on record, bar the short-lived 2015-17 term. Austerity will also in practice continue for many public services as further cuts were pencilled in.

“The Chancellor has delivered a big Budget, but whether it’s on tax or spend, there are many more big questions still to answer before the UK fully emerges from its worst downturn in 300 years.”

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