Labour’s Budget might give the country a sugar rush of growth but soon we’ll all end up paying more – and here’s why
ONCE the noise has died down, what people really need to know from a Budget is how it affects them.
No one was expecting this one to be a champagne-popping affair with bags of giveaways.
Most people have been in a brace position ever since Chancellor Rachel Reeves called off Labour’s brief honeymoon in the summer with her cold decision to cut Winter Fuel Payments and warnings of painful choices.
The reality is sadly even more sober. And that’s even if you include having to glug around 500 draught pints to make the penny off worth a free pint.
This was a Budget that was meant to justify raising taxes by £40billion, the biggest tax burden in living memory, to rebuild the country and get the economy growing again.
Except even that big, bold ambition hasn’t worked.
You won’t be alone in thinking, “What’s the point of it all?”
The Budget will deliver a brief sugar-rush of growth in the next year, which will enable Reeves to point to it as a sign her plan is working.
But critically, the Budget watchdog, the Office for Budget Responsibility, has predicted the economy will actually have lower growth by the end of Parliament.
This is enormously important because it feeds into how well we all live our lives.
The Chancellor’s decision to binge on tax burdens will be passed on to us all in the form of higher prices.
We already know from the pain of the cost-of-living crisis that this feeds nasty inflation, which means we can afford less with the money we earn.
Inflation won’t shoot back as high as the horrors of 11 per cent last year, but it will stay stubbornly above the golden target of two per cent.
As a result, the Bank of England will be slower to cut interest rates next year.
This will continue to make mortgages more expensive when millions of us have to refinance on to higher rates.
And due to the Chancellor’s stamp duty changes, more than nine in ten homes sold from March will incur duty, including for first-time buyers. So much for property ladder hopes.
While the Chancellor claimed her Budget will put “more pounds in people’s pockets” it will mean the average family will be £770 worse off in real terms by October 2029 compared to today, according to the Joseph Rowntree Foundation.
We already know from the pain of the cost-of-living crisis that this feeds nasty inflation, which means we can afford less with the money we earn
Couples with children will be even harder hit and £1,760 worse off, its analysis says.
The biggest issue with the Budget is Reeves’ verbal gymnastics over National Insurance contributions.
While the Chancellor claimed she was sticking to her manifesto promise of not raising NI for workers, instead she has targeted the biggest tax rise possible — a whopping £25.7billion — by passing on a big hike in NI contributions to employers.
You might argue, “Great, at least it’s not coming from my pay packet.” Except, it will in the future.
Yesterday, the Institute for Fiscal Studies slammed the Chancellor for this falsehood, saying: “The continued pretence that these changes will not affect working people risks further undermining trust.”
The OBR watchdog has already said 76 per cent of the cost of employers footing the bill will actually feed into lower real wages.
This means it will be harder to ask for pay rises or get a job in the first place — because it will become unbearably expensive for some businesses to take or keep staff on.
And this is on top of Labour’s workers’ rights reforms, which the Government’s own documents say add £5billion to the cost of business.
There is good news if you are one of the three million workers on minimum wage.
The Chancellor confirmed a 6.7 per cent pay rise, from £11.44 an hour to £12.21, from April.
Those on state benefits will also get a boost with Universal Credit rising by 1.7 per cent next April.
This will work out as an extra £1.50 a week from £90.55, and couples will get £2.50 extra a week from the current level of £145.13.
The amount of debt repayments that can be taken from a household’s Universal Credit payment each month has been reduced from 25 per cent to 15 per cent, which the Government claims will put £420 a year more in the pockets of claimants.
However, what of the rest of the 27million workers in Britain?
The cost of hiring a staff member over 21 has become, on average, £2,500 more expensive overnight, according to analysis by UK Hospitality.
This will lead to companies making tough choices on growing, hiring and investing.
The biggest issue with the Budget is Reeves’ verbal gymnastics over National Insurance contributions
Those hated self-scanning tills will become more commonplace because they will be significantly cheaper than human workers.
The one upshot for ambitious workers is that the Chancellor has removed the freeze on income tax thresholds, which automatically nudge people into a higher rate of tax.
But you will have to wait until 2029 for the benefit — conveniently just before the election year.
It’s enough to make you reach for a stiff drink.
Except an increase in duty on spirits has just made that more expensive too.