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IFS calls Sunak 'fiscal illusionist' after warning measures are not enough

British Chancellor of the Exchequer Rishi Sunak speaks at a statement on the economic update session
The IFS warned that inflation levels in the poorest households would be even higher than the Office for Budget Responsibility was forecasting after Rishi Sunak's Spring Statement. Photo: UK Parliament/Jessica Taylor/Handout

The Institute for Fiscal Studies (IFS) has branded Rishi Sunak as a “fiscal illusionist” after warning that measures announced in his Spring Statement would not be enough to offset the expected fall in real earnings.

Paul Johnson, director of the economic think tank, said the chancellor’s tax cuts would not protect poorer UK households from “a significant hit to their living standards”.

Instead he criticised the finance minister for leading most workers to pay more in the long run, further warning that inflation levels in the poorest households would be even higher than the Office for Budget Responsibility (OBR) was forecasting.

“He told us that he cut taxes yesterday. In a sense he did. He increased the floor for national insurance contributions and promised a cut in income tax in 2024,” Johnson said.

“So Mr Sunak’s statement contained big new tax cuts. But it also allowed taxes to rise. He can now expect to raise more in tax as a share of national income by 2025 than he expected last October.

Read more: Rishi Sunak defends Spring Statement saying ‘it’s impossible’ to protect everyone

“In fact, taxes are set to rise to their highest level as a fraction of national income since Clement Attlee was prime minister. Not my comparison, that comes directly from the OBR.”

He added that despite Wednesday’s announcements, overall, Rishi Sunak has still raised taxes by nearly as much as Gordon Brown did over a decade.

Presenting the IFS’s analysis of the Spring Statement, it was revealed that an average earner on £27,500 ($36,300) a year now will be around £360 worse off in the next financial year, while someone earning £40,000 will be almost £800 worse off.

Watch: Spring Statement: Key takeaways from Rishi Sunak's speech

The OBR has already revealed that living standards face their biggest decline in a single year since records began in the mid-1950s.

Read more: Rishi Sunak warned mini-budget is not enough to stop 'needless deaths'

Johnson also highlighted Sunak’s decision to press ahead with the national insurance hike.

“His choice to increase NI rates and reduce the basic rate of income tax looks indefensible from an economic point of view, though one can see the political attractions,” he said.

He added that the chancellor did nothing for those dependent on benefits.

“While benefit levels will catch up with inflation next year, that will be of little comfort to those budgeting week to week or to those who are unemployed this year but not next year. It is hard to understand the lack of action on this front.”

Watch: Sunak denies he is 'embarrassed' to call himself a tax-cutting chancellor whilst raising taxes

The IFS said it was “inevitable” that the £2.4bn cut in fuel duty announced on Wednesday would end up being a permanent move, and not a 12-month one-off, meaning that next year the Treasury will have to find the money to fund it.

“There’s another illusion in there too – the annually repeated illusion that fuel duties will actually rise next year. Not only do the public finance forecasts depend upon the 5p cut being reversed, they assume an increase in line with the RPI on top of that.

“The odds against 3 the former feel long. I reckon an RPI increase on top is about as likely as my winning the national lottery. And I don’t play the lottery.”

Read more: Spring Statement: Rishi Sunak cuts income tax and fuel duty

He also pointed to the lack of spending on health and education departments in the Spring Statement, meaning huge real terms pay cuts across the public sector.

It comes as Sunak defended his Spring Statement on Thursday, saying he knows families are struggling with the rising cost of living but that “it is impossible to protect everyone”.

Sunak told BBC Radio 4’s Today Programme: “Of course I acknowledge that families are struggling with rising inflation. We’re all grappling with global inflation challenges and the response to Putin’s Russia. Those actions are not cost free for us at home and of course that is impacting family budgets.

“I wish I could make sure we protect everyone against all aspects of that but it’s impossible for anyone in my job to do that. What we can do is make a difference where we can.”