Experts warn Britain faces ‘a decade in the doldrums’ if Jeremy Hunt announces tax cuts in the Autumn Statement instead of boosting investment as report reveals poorest Brits will not see their real income bounce back to pre-Covid levels until 2026

Britain could face a decade in the economic ‘doldrums’ if Jeremy Hunt gives in to Tory pressure for tax cuts instead of investing in public services, experts warned today.

The National Institute of Economic and Social Research (NIESR) said it believes interest rates have peaked and that wages will rise by just over 7 per cent in 2023 and 2024.

But it called on the Government to increase public investment rather than implementing tax cuts ahead of the autumn statement later this month.

‘In its absence the UK is set for a decade in the doldrums and poor prospects for regional regeneration,’ it said.

The Chancellor is facing a mounting clamour to bring forward eye-catching tax cuts at the Autumn Statement on November 22, with concerns that could be the last opportunity to avoid an election disaster. 

Mr Hunt has been playing down the prospects of a big shift to stop taxes reaching new post-war highs, warning the public finances are already stretched and it could fuel inflation.

However, economists have suggested that he does have some wriggle-room after tax revenues came in higher than anticipated and borrowing slightly lower. 

‘The level of taxation in the United Kingdom is currently at its highest for decades, taking up around 40 per cent of GDP, and our forecast is for this to remain the case for the next few years. Given the tight fiscal position of the government, the scope for major reductions in taxation is limited.’ the report said.

The NIESR said the real incomes of families in the bottom half of the income distribution will be around 5 per cent lower in the 2024 financial year compared with the year ending March 2020.

It came as a charity revealed it had given out a record 1.5 million emergency parcels in a six-month period, including for tens of thousands of first-time users, in statistics described as ‘extremely alarming’.

‘Should there by any room for tax cuts, NIESR would advocate that raising thresholds for tax and National insurance should be the priority. But this is unlikely, given a four-year freeze on thresholds was put in place in March 2021 and subsequently extended into 2027-28. 

The NIESR also said the real incomes of the poorest half of UK families will not get back to their pre-pandemic levels until the end of 2026.

The real incomes of families in the bottom half of the income distribution will be around 5 per cent lower in the 2024 financial year compared with the year ending March 2020.

It will mean families will not see their real incomes, which take into account inflation, hit pre-pandemic levels until 2026, despite big wage rises.

‘Higher real wages this year are a welcome boost, especially for low-income working families who have been hit hardest by the Covid and inflation shocks,’ said Professor Adrian Pabst, of the NIESR.

‘But a return to pre-pandemic living standards will require sustained real wage growth, including further increases in the National Living Wage.’

The group said the Government should increase investment incentives for companies.

This could include making permanent a recent decision which allows companies to fully expense their investment.

The NIESR predicted that interest rates would not go higher than today’s 5.25 per cent base rate, and will settle at between 3-3.5 per cent.

It said these higher rates, coupled with falling real wages, has helped to push down house prices for the first time in nearly 15 years.

It forecast that prices will fall by around 6.5 per cent by the second quarter of 2025, putting around 50,000 more households into negative equity.

Prof Pabst added: ‘Only a rethink of economic and social policy can avoid another period of protracted stagnation where the United Kingdom falls further behind other advanced economies and regional disparities continue to widen.’

It came as a charity revealed it had given out a record 1.5 million emergency parcels in a six-month period, including for tens of thousands of first-time users, in statistics described as ‘extremely alarming’.

The Trussell Trust charity’s UK-wide network of food banks said 65 per cent of all the parcels dispatched between April and September this year were for families with children.

The situation means a ‘generation is growing up believing that it’s normal to see a food bank in every community’, according to the organisation’s chief executive Emma Revie.

The total of 1,496,847 parcels given out between the beginning of April and end of September is up from 1,292,621 in the same period last year, and from less than a million in those six months in 2021, the charity said.

More than half a million (543,635) parcels were for children in the latest period, compared to 487,884 in the same six months last year, and 370,575 in that period in 2021.

The parcel figure for children living in families who could not afford the essentials is at a record high, which the charity said is a reflection of the ‘continuing rise in need for the support provided by food banks’.

Trussell Trust said 320,000 people have needed to use a food bank for the first time in the past six months, as the organisation warned food banks ‘are at breaking point as more and more people in communities across the UK find themselves unable afford the essentials’.

The charity, which supports more than 1,300 food bank centres across the UK, had already predicted last month that centres could hand out a record more than one million emergency parcels this winter amid an ever-growing need.

On the latest figures for the most recent six-month period, Ms Revie said: ‘These statistics are extremely alarming. An increasing number of children are growing up in families facing hunger, forced to turn to food banks to survive. A generation is growing up believing that it’s normal to see a food bank in every community. This is not right.

‘Rising hunger and hardship have devastating consequences for individuals and our communities, damage the nation’s health and hold back our economy. People in work, as well as people who cannot work, are increasingly being pushed into debt and forced to turn to a food bank to survive.’

The organisation repeated calls which have also been made by other charities working to tackle poverty, homelessness and helping children, for a so-called ‘essentials guarantee’ to be brought in – meaning Universal Credit should protect people from going without the basics.

Trussell Trust also emphasised the call to Chancellor Jeremy Hunt to confirm in the Autumn Statement later this month that benefits will rise in line with inflation.

Separate research last month from social change organisation the Joseph Rowntree Foundation (JRF) suggested almost four million people, including more than a million children, experienced the most extreme form of poverty last year in the UK.

The organisation said the figure for children has almost trebled since 2017 and topped one million for the first time since it began its research in 2015.

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