‘Simply staggering’ hit to living standards coming next year, top economist warns

LONDON, ENGLAND - NOVEMBER 17: Chancellor of the Exchequer Jeremy Hunt departs Downing Street to present the Autumn Statement to the House of Commons on November 17, 2022 in London, England. The Chancellor hopes his fiscal plans will restore market confidence in the UK's economic outlook, as well as head off a cost-of-living crisis. (Photo by Rob Pinney/Getty Images)
Chancellor Jeremy Hunt said the government wanted to be 'honest about the challenges and fair in our solutions'. (Getty Images)

A top economist has said that the hit to living standards will be "simply staggering" next year as the UK battles through a painful recession.

The comments came in the aftermath of Jeremy Hunt's Autumn statement, which saw the chancellor raise taxes to the highest levels since the 1940s.

Freezes to income tax thresholds and increases in council tax were among a raft of measures that will leave millions feeling the cost of living squeeze.

Hunt confirmed benefits and pensions will increase in line with inflation, and revealed an extension of the government's energy price guarantee for households – though at a less generous level.

Read more: Autumn statement summary: How the money in your pocket will be affected by Jeremy Hunt's budget

In its analysis to accompany the statement, the Office for Budget Responsibility (OBR) predicted a 1.4% drop in GDP next year and a record-breaking decline in living standards in 2023/24.

Responding to the OBR's analysis Paul Johnson, director of the Institute for Fiscal Studies (IFS), described Hunt's budget as a "sombre affair".

"Simply staggering numbers in OBR report," said Johnson.

"Real household disposable income per person to fall more than 7% over next two years.

"Biggest fall on record. Taking incomes down to 2013 levels."

He added: "The next few years look grim in terms of living standards".

Living standards are set for their biggest decline since records began. (Office for Budget Responsibility)

The Treasury's own analysis reveals that around 55% of households will be worse off as a result of the measures.

Tom Waters, senior research economist at the IFS, described the outlook as "depressing".

He said: "On current forecasts, this year will be the worst year for living standards since records began in 1948.

"What's the second worst year, I hear you ask? Next year."

Key announcements in the autumn statement included:

  • The average yearly energy bill price cap will rise from £2,500 to £3,000 in April 2023

  • The freeze on income tax and NICs thresholds will be extended to 2028

  • The threshold for the top rate of income tax (45p) will be reduced from £150,000 to £125,140

  • Benefits and pensions will increase in April 2023 by 10.1%, in line with September's inflation

  • Means-tested benefit claimants will receive a £900 cost of living payment, with pensioners receiving £300 and people on disability benefits receiving £150

  • The national living wage will increase from £9.50 to £10.42

The government energy price guarantee at its current level expires in April 2023 (Yahoo News UK/Flourish)
The government energy price guarantee at its current level expires in April 2023 (Yahoo News UK/Flourish)

The OBR has predicted more pain with a 9% fall in house prices, and unemployment rising by 505,000 by 2024 from 3.5% to 4.9%.

They said inflation on food and non-alcoholic beverages, which hit 16.4% in the 12 months to October, will continue to rise "in the near term" - adding 1.5% to inflation overall in 2023.

Read more: The stat that shows how badly the UK economy is doing right now

Responding to the budget, shadow chancellor Rachel Reeves claimed the government were making "unfair choices".

"Britain is a great country, with fantastic strengths. But, because of this government’s mistakes, we are being held back," she said.

"What people will be asking themselves at the next general election is this: 'Am I and my family better off with the Tories?' And the answer is 'no'.

Watch: Tories accused of 'picking pockets of entire country' as budget leaves more than half of households worse off