Households face 'dismal' rise in spending power, says IFS

Households are facing a "truly dismal" increase in their disposable income following the Budget, the Institute for Fiscal Studies (IFS) think tank says.

The IFS points to analysis of the government's tax and spending plans by the Office for Budget Responsibility (OBR), which forecast that the average disposable income would grow by "only" 0.5% annually over the next five years.

Disposable income measures the amount of money people have left to spend after taxes have been paid.

IFS director Helen Miller said the growth was disappointing "especially when compared to the more than 2% per year we achieved across every parliament from the mid-1980s to mid-2000s".

She said this had been another "big Budget", with "meaningful increases in tax, spending, and borrowing".

According to the IFS, average disposable income per person is expected to rise by nearly £104 a year for the next four years, under current inflation forecasts.

"Before this Budget, the UK was faced with lacklustre economic growth, stagnating living standards, and a dizzying array of fiscal pressures," Ms Miller said.

"The same is still true after this Budget."

Her comments were backed up by the Resolution Foundation think tank, which predicted that the growth in living standards in this parliament would be the second worst on record.

The government has also faced accusations it has broken its election pledge not to raise taxes on "working people".

Labour's manifesto last year pledged not to increase "National Insurance, the basic, higher and additional rates of Income Tax, or VAT".

But in her Budget, Chancellor Rachel Reeves chose to extend the freeze on income tax thresholds for a further three years beyond 2028. She also imposed a £2,000-a-year cap on the amount put into pensions from 2029 through a salary sacrifice arrangement before National Insurance payments are due.

Ms Miller said: "I would call that a breach of the manifesto."