Tory backbenchers cheered loudly as Sunak pulled his rabbit out of the hat – a 1p income tax cut designed to come into force in April 2024, a month before the date set for the next general election . But budgets – and mini-budgets – that look good on the day often look worse in the weeks that follow. And there is every chance that the Chancellor’s latest offer will conform to this pattern.
For starters, Sunak’s package was much more modest than he was trying to make out. The package of new measures announced will provide a £9billion stimulus to the economy, or around 0.4% of the economy’s annual output.
But as Paul Dales of Capital Economics pointed out: this will still leave households facing a £20bn drop in their real disposable incomes due to rising food, fuel and utility prices over the of the next two years. The standard of living, according to the Office for Budget Responsibility (OBR), will fall further by more than 2% this year.
For the most vulnerable – those out of work and dependent on state benefits – the pressure will be even more severe. This is because they will not benefit from the £3,000 increase in the National Insurance contribution threshold – a measure which mainly helps better-off households – but will be hampered by rising inflation. As the Resolution Foundation think tank pointed out, out of £3 of new aid provided by the Chancellor, £2 will go to people in the top half of the income distribution.