Sunak's budget was progressive - but that doesn't mean you will feel better off

If you follow the news closely you might recall that a few weeks ago, back when the Conservatives were having their party conference, there were a few big economic themes floating around.

The first was the idea, pushed by the Tories, that the solution to the supply crisis and Britain’s broader economic weakness was higher wages.

Higher pay would push up everyone’s living standards in the coming decades – or so went the argument.

The other policy idea people were talking about was that one solution to the impending removal of the COVID-era Universal Credit uplift was to reduce the rate at which benefits are withdrawn from people as they work more – the so-called taper rate.

Well here we are one day on from the budget, and what’s clear is that one of these ideas turned out to be very right, but the other one turned out to be very wrong.

The taper rate was indeed cut in the budget, but the notion that everyone would be considerably better off…well, that could hardly have been further from the truth.

The evidence was there to be seen on Thursday in both the Institute for Fiscal Studies and Resolution Foundation’s post-budget analyses.

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According to the IFS, real wages, which is to say what you take home in pay after inflation is accounted for, are likely to be lower in 2026 than they were in 2008.

Consider that for a moment: not just a decade of lost real income growth, but nearly two decades.

Now, much of that happened in the past, but what’s striking about the Treasury’s official forecasts carried out by the Office for Budget Responsibility is that, far from perking up in the coming years, real wages continue to flatline.

In fact, for a couple of years they actually fall.

The point here is that for all the big numbers thrown around by the Chancellor this week, for all the billions of pounds of extra government spending (and there was a lot of that) it doesn’t seem to be translating into better living standards.

The government can’t be chastised unduly for this. It’s a problem many developed economies are facing; but don’t be fooled into thinking the feelgood factor is about to return.

That being said, the IFS verdict is that when it comes to public spending, austerity is over in some respects.

The spending review accounted for three years of relatively big spending increases across most of Whitehall.

The problem is that much of this is going towards the health service, leaving less money for education, justice and most other bits of government.

Indeed, by 2024/25, the end of this parliament, in real terms the education budget will be only 2.8% higher than it was in 2009/10. Note we’re not talking here about annual average increases; that’s a 2.8% increase over a decade-and-a-half.

Other bits of government have it far worse: the average departmental budget excluding health will still be about 8% lower than it was before the era of austerity. So while spending is rising, things are not back to how they were.

As for that Universal Credit taper change, one question being pondered yesterday was how much difference it will make.

The short answer is quite a lot, albeit not enough to compensate for the loss of the temporary uplift.

Those on UC and working will be able to keep more money if they work more, and the benefits of this accrue primarily to those on the lower end of the income spectrum.

In other words, this was a budget (and for that matter, a spending review) which was progressive.

The problem is that none of this will necessarily make you feel much better off. The squeeze on living standards has been a feature of this country’s economic landscape for half a generation now.

Unless the OBR has got its sums wrong, which is perhaps the best thing to hope for, it looks like being in place that bit longer.

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