The Institute for Fiscal Studies warns households are in for a “long, hard, unpleasant journey”.
Image source, Getty ImagesHigher taxes “look to be here to stay” following the Autumn Statement, the Institute for Fiscal Studies (IFS) economic research group has said.
The UK has entered a “new era” of higher taxes as the government seeks to raise money to shore up the economy and help with bills, it said.
IFS director Paul Johnson said that households were in for a “long, hard, unpleasant journey”.
The chancellor has faced criticism for announcing tax hikes while prices soar.
On Friday, Jeremy Hunt defended the announcements made during his economic update, where he said that tax thresholds would be frozen, meaning millions will pay more.
But Mr Johnson warned that the move to put up taxes as prices are soaring at their fastest rate in 41 years would result in the “biggest fall in living memory” for living standards.
“This will hit everyone. But perhaps it will be those on middling sorts of incomes who feel the biggest hit,” he said in the opening remarks of the influential think tank’s assessment of the chancellor’s economic plan.
In total, the plans announced on Thursday amount to about £25bn in tax rises. The measures included:
- Tax thresholds being frozen until April 2028, meaning millions will pay more tax
- The top 45% additional rate of income tax being paid on earnings over £125,140, instead of £150,000
- Local councils in England being allowed to hike council tax up to 5% a year without a local vote, instead of 3% currently
Mr Johnson said that because they do not benefit from target support with the rising cost of living, middle earners will be hit hard.
“Their wages are falling and their taxes are rising. Middle England is set for a shock,” he said.
Mr Johnson added that the government was “reaping the costs of a long-term failure to grow the economy”, the effects of an ageing population and high levels of borrowing in the past.
“We are in for a long, hard, unpleasant journey; a journey that has been made more arduous than it might have been by a series of economic own goals,” he said. “Mr Hunt appears to have recognised this.”
On Thursday, the government’s independent forecaster, the Office for Budget Responsibility, said the UK is in a recession and forecast that the economy will shrink next year.