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Budget plans risk ‘second lost decade’ of living standards, Jeremy Hunt told

<span>Jeremy Hunt is under pressure from his party to deliver tax cuts as Rishi Sunak scrambles to reboot his premiership before the election.</span><span>Photograph: Simon Dawson/No 10 Downing Street</span>
Jeremy Hunt is under pressure from his party to deliver tax cuts as Rishi Sunak scrambles to reboot his premiership before the election.Photograph: Simon Dawson/No 10 Downing Street

Jeremy Hunt has been told Wednesday’s budget risks condemning Britain to a second “lost decade” for living standards that would leave working families £1,900 a year worse off.

The chancellor enters a crunch week under pressure from his party to deliver a package of pre-election tax cuts, but analysis by the Joseph Rowntree Foundation (JRF) finds a widening gulf between these political demands and the reality facing millions of struggling people.

The poverty charity said fixing Britain’s crumbling public realm and tackling sky-high NHS waiting lists ranked significantly higher in the list of voter priorities than the level of tax on earnings.

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Publishing an opinion poll of almost 5,000 people across Britain carried out by YouGov, it found almost three quarters were “very worried” or “fairly worried” about funding for the NHS and other public services, compared with less than half who were concerned about tax on earnings.

Speaking on Sunday, Hunt said he wanted to move Britain towards becoming a lower-tax economy, but that he would only be able to do so “as and when we can afford it”.

Hosing down Tory hopes for a large package of giveaways in a round of media interviews, he said the most “unconservative” thing he could do would be to announce tax cuts funded by higher borrowing. “This will be a prudent and responsible budget for long-term growth,” Hunt said.

His comments come as he grapples with self-imposed rules requiring government debt to be falling as a share of the economy by the fifth year of forecasts made by the Office for Budget Responsibility, the tax and spending watchdog.

It is understood the Treasury has been handed forecasts from the OBR showing headroom of just under £13bn within this target before any new tax or spending decisions are made – significantly less than the £30bn in pre-measures headroom before last year’s autumn statement.

Aiming to find extra room to fund broad-based tax cuts, Hunt has considered poaching Labour’s policy to scrap the non-dom tax regime, alongside proposals for a new duty on vaping, and raising £300m a year by putting up taxes on second-home owners who profit from holiday lets.

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Hunt is also planning a £1.8bn public-sector productivity drive, arguing efficiency gains can be found to improve the quality of services while freeing up cash for lower taxes.

Abolishing the non-dom tax regime would raise an estimated £3.6bn a year, but would be highly politically charged, given that Rishi Sunak’s wife, Akshata Murty, had used it to save paying millions in UK tax.

Unions said more than a decade of austerity had already squeezed the public sector, and that a fresh productivity drive was only likely to result in further cuts to public services.

The general secretary of Prospect, Mike Clancy, said: “Every time this government finds itself in a difficult spot, it conjures up a phantom villain to pin its failings on. But after 14 years in charge, blaming hardworking civil servants and supposed wokery simply won’t wash with voters.”

Asked about the claims on Monday morning, the economic secretary to the Treasury Bim Afolami claimed certain groups of people were better off than when the Tories took office in 2010.

He told LBC Radio: “If you look at the record since 2010, for people on the lowest incomes, they are 30% – better off people on minimum wage if they’re working full time – they’re 30% better off in real terms ... So the picture is not is not uniformly bad; particularly for average people on average incomes.”

With Sunak scrambling to reboot his premiership before a general election expected later this year, two main tax cuts in consideration are thought to be reductions in employee national insurance or income tax. A cut in national insurance of 1p would cost the Treasury about £5bn a year, however, while reducing the 20p basic rate of income tax by a similar amount would cost about £7bn a year. An extension of a reduction in fuel duty worth about £1bn a year is also being explored.

Tory backbenchers have urged the chancellor and the prime minister to “be brave and bold” and fund tax cuts on Wednesday amid fears it is the party’s last chance to convince the public they actually have a plan.

One Tory MP said people needed to see an improvement in their finances “sharpish”. “It’s not enough to make a statement saying how much you love this country. They need to show it with a 2p tax cut.”

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Another said: “Labour may find another way to trip themselves up, but we need to focus on tax cuts. It’s the only way we can show we understand the difficulties people are facing with high costs at the moment. It’ll be hard to fight ‘out of touch Tory’ slogans this election campaign.”

The former Tory chancellor Ken Clarke, however, said he was fed up with speculation and briefing over the government’s plans to buy votes with tax cuts. He told Times Radio the public wanted to be reassured that there was a prospect of “getting back to the kind of growth with low inflation that steadily improves our public services and daily way of life”.

In a report urging Hunt to look at areas other than tax cuts to support hard-pressed people, JRF said the budget risked keeping the UK economy locked on track to leave working families £1,900 a year worse off in 2029 than they were in 2021.

It said households’ average post-tax earnings at the start of 2024 were as much as £2,400 a year lower than at the start of 2021. Working households could benefit from rising wages and lower inflation as the UK economy recovers from recession, but it said progress would be limited and unable to overcome this earlier shortfall.

JRF’s chief economist, Alfie Stirling, said the prospect of a “second lost decade” would come after 14 years of stalling progress to raise living standards, including the failure to increase average workers’ pay substantially above pre-2008 levels after inflation was taken into account.

“Unless policy makers intervene, the 2020s are set to see an unprecedented second lost decade of living standards in a row. As an economy, as a society and as a country, we simply can’t afford this to happen,” he said.

“With the budget just days away, renewed political energy and policy bravery is needed urgently to avert a second period of unthinkable decline.”