The OBR watchdog warns Britons are STILL facing the worst drop in living standards since records began in the 1950s and the highest tax burden since World War II as the economy comes to a halt this year – despite avoiding a full-blown recession
Britons still face the worst drop in living standards since records began in the 1950s and the highest tax burden since World War Two, the OBR warned today.
The Treasury watchdog pointed to continued misery despite its latest forecast indicating the outlook has improved since the autumn.
The economy also remains on track to contract by 0.2% this year, although Jeremy Hunt has boasted that UK plc will avoid technical recession – defined as two successive negative quarters.
In documents accompanying the spring budget, the watchdog said the chancellor was only on track to hit his debt targets by the narrowest of margins after a big splurge on childcare and the fuel tax freeze.
It has also potentially caused problems for the government by estimating that migration will now stand at 245,000 – more than the 205,000 it forecast in November.
The OBR watchdog pointed to continued misery despite its latest forecast indicating the outlook has improved since the autumn
The report indicates that real household disposable income (RHDI) per person is expected to fall by 5.7% in fiscal years 2022-23 and 2023-24.
“Although this was 1.4 percentage points lower than expected in November, it would still be the largest two-year decline since records began in 1956-57,” the OBR said.
“The decline in the HRDI per person primarily reflects the rise in the price of energy and other tradable goods of which the UK is a net importer, resulting in higher inflation than nominal wage growth.
“This means that the real standard of living is still 0.4% below its pre-pandemic level in 2027-28. But they are 0.6% higher than our November forecast thanks to lower market expectations for medium-term gas prices and an upward revision to potential output.
The watchdog said the latest forecast “continues to see the tax burden (the ratio of national accounts taxes to GDP) hit a post-war high of 37.7% of GDP over the forecast horizon. in 2027-28, including the highest ratio of corporate tax revenue to GDP since the introduction of the tax in 1965”.
“We also still expect the ratio of public expenditure to GDP to stand at 43.4%, its highest level since the 1970s,” he said.
The OBR said Mr Hunt had committed funds to ‘provide further support for energy bills and business investment in the near term, while boosting labor supply in the medium term’.
“It reduces inflation this year and, more importantly, sustainably increases employment and output over the medium term.
“But that leaves debt falling by only the smallest margin in five years.”
Net migration flows stand at 245,000 per year, instead of the 205,000 assumed in our November forecast and 129,000 in our March 2022 forecast (left panel of Figure 2.7). A larger population, due to increased net migration, adds 0.5% to potential output in 2027.
Inflation is expected to fall a little faster than expected