British Chancellor of the Exchequer Rishi Sunak's autumn budget puts the UK on track for a "new high-tax economy" that will leave living standards squeezed as the country eases out of the pandemic, analysts said on Thursday.
There were also criticisms over Mr Sunak’s decision to hold or cut taxes on fuel and flying just days before the UK will host 197 countries for key climate change talks at the Cop26 environment summit in Glasgow.
The budget will leave the overall tax burden at its highest level in 70 years, according to the Office for Budget Responsibility, while The Resolution Foundation said this will amount to a £3,000 increase per household since Boris Johnson became prime minister, with the poorest households hit the hardest.
The think tank said this burden combined with higher growth, inflation and public spending than previously expected could see Britain "set for a flat recovery for household living standards".
“The chancellor set the stage for a new high tax economy – rather than the high wage economy pledged by the prime minister, or the low tax one favoured by many Conservative MPs,” the Resolution Foundation said.
Meanwhile, Mr Sunak was heavily criticised for wanting to encourage more people to take short-haul flights within the UK by reducing air passenger duty for those journeys to £6.50 in a boost to nine million domestic passengers.
The policies angered environmental campaigners pushing the UK to accelerate its transition to net-zero emissions, and threaten to undermine the UK's efforts to show leadership on tackling climate change before the Cop26 summit.
“Cutting air passenger duty on domestic flights is an astonishing move that completely flies in the face of the climate emergency. The chancellor should be making it cheaper for people to travel around the country by train, not carbon-guzzling planes,” said Mike Childs, head of policy at the non-profit Friends of the Earth.
Shadow Chancellor Rachel Reeves said announcements to cut air passenger duty are “astonishing”.
“We wouldn’t have gone ahead with that cut,” she told BBC Radio 4’s Today programme.
“I find it astonishing that, the week before Cop26, where we are supposed to be showing global leadership, we have cut air passenger duty on domestic flights.
“We should be encouraging people to use our train network for those journeys.”
To offset any increased carbon emissions, the Treasury also said it would increase fuel duty for long-haul flights. Those flying up to 2,000 miles (3,200 kilometres) in economy class will pay £13 per flight, rising to £87 for those traveling 2,000 to 5,000 miles.
Above 5,000 miles, the duty will be £91. A Treasury official said the effect of the changes to the tax would be carbon neutral when the cut to levies for domestic flights is balanced against the rise in ones for long-haul journeys.
The chancellor also confirmed he would freeze road fuel duty for the 12th year in a row, because fuel prices are at their highest level in eight years.
The policies come shortly after the Treasury was criticised by its advisers, the UK Climate Change Committee, for failing to have a clear plan on how it would use taxes to pay for the transition. In particular, it said it was unclear how the Treasury would fill a revenue hole left by a switch to electric vehicles.
With the UK economy on a stronger footing than expected with 6.5 per cent of growth expected this year rather than 4 per cent, the chancellor set out £150 billion of departmental spending as well as help for people on low incomes to tackle the rising cost of living.
In an attempt to reassure nervous Conservatives, Mr Sunak told the Commons that by the next election “I want taxes to be going down not up".
This budget was perhaps more notable for what the chancellor didn’t do rather than what he did,” said Neil Shearing, group chief economist at Capital Economics.
“The OBR handed Rishi Sunak a significant upgrade to its forecasts for the public finances but, while the Chancellor spent some of the windfall a substantial amount was saved – allowing the Chancellor to start building a war chest that could be deployed ahead of the next election.”
Mr Sunak was also criticised for his decision to reinstate a commitment to spend 0.7 per cent of national income on overseas aid by 2024/25, in line with other Group of Seven countries.
He had cut it to 0.5 per cent last year, during the first stages of the pandemic. That led to criticism from poor nations and his own party that the UK was failing to show international leadership on helping the world cut emissions.
Nick Dearden, director of the non-profit Global Justice Now, said the budget would undermine trust with developing countries because it “locked in” another three years of overseas aids cuts.
“If the Chancellor’s failure to give the climate more than a passing mention in today’s inward-looking Budget is anything to go by, there will be little trust or faith in the UK's ability to deliver on its pledges at COP26,” he said.
Meanwhile, analysts feared the temporary business rates discount of 50 per cent for shops, restaurants and gyms, which were all badly hit by the pandemic, could actually cost some independent retailers more.
While the British Independent Retailers Association said it was initially 'pleased' the chancellor had addressed business rates and some of the other burdens faced by indie retailers in his Autumn Statement, Andrew Goodacre, Bira chief executive, said: "The devil is in the detail."
"The rates bill for this year was reduced to 25 per cent (of normal levels) in response to Covid," he said. "Therefore reducing rates by 50 per cent next year is in fact a 100 per cent increase on what businesses are actually paying. On top of everything else, this will be a challenge."
Helen Dickinson, chief executive of the British Retail Consortium, said the budget did not do enough to reduce the burden of costs bearing down on shops, high streets and communities.
“This budget is a missed opportunity for retail and the three million people who work in the industry, and it prevents retail from maximising its contribution to the government’s levelling up agenda," Ms Dickinson said.
“While the Government’s 50 per cent bridging relief for 2022/23 may prove to be beneficial for the smallest businesses, it will do little to support the businesses that pay two-thirds of retail business rates and employ 1.5 million people.
"With no reduction in the burden, this will lead to the unnecessary loss of shops and jobs and fails to incentivise investment in all parts of the country. This is bad news for every member of the public who wants a vibrant high street in their local community, with retail at its heart.”