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The collapse in disposable income will be about as grim as you can imagine – so why is the government embracing it? | Business News


Let’s start with the story of two charts. Or rather, a chart.

Be warned: it’s not a pretty chart. It shows how average household disposable income has changed each year since 1955, and it’s largely a story of progress.

As the years went by, we saw our disposable income grow for most of the year.

But this is where it gets tough, because that race is coming to an end. Back in March, the Office for Budget Responsibility created this chart, and it shows the worst year for changes in disposable income since records began in the 1950s.

At that time, Rishi Sunak was prime minister and behind the scenes he was very angry with OBR. Why did they ruin his elaborately honed spring statement with their distress chart?

Now let’s move on to today. OBR updated the chart for autumn declaration and the prognosis is even worse.

Now we are facing not only worst year for household disposable income in modern history, but two worst, one by one. It’s about as grim as you can imagine.

And if there’s a chart you’d like to keep in mind in the coming months as households face a squeeze of things they rarely experience, and more people are pushed ever closer to poverty, If you’re distraught, it’s this chart.

This time around, however, unafraid of the chart’s release, the Treasury effectively embraced it. And this change in attitude tells you quite a bit.

While Mr. Sunak once wanted to alleviate the economic hardship the country is facing, today he wants to emphasize it.

The government wants people to know how difficult things are because the fiscal remedial measures they are implementing in the fall declaration will be very uncomfortable without some justification.

The rationale in Whitehall is that if people realize how miserable the economic environment is, they might be willing to accept another round of fiscal contraction.

It’s worth mentioning, though, that the squeeze priced in the fall statement isn’t quite as tough as pre-event leaks might have suggested.

At least, numerically, this isn’t the austerity we’ve seen in the Osborne years. But for many government agencies that have been cut to the bone, it will still feel pretty brutal.

For education and the NHS, there have been unexpected increases in grants – but inflation is indeed likely to eat away at those increases very quickly.

However, let’s take a step back and see where public finance is going in five years’ time. Back in March, the plan was to reduce net public sector borrowing to £31.6 billion by 2026/27. As of the fall statement, the plan is to reduce it to just £80.3 billion.

Previously, this was considered a high budget deficit – over 2% of gross domestic product. This is not financial conservatism.

But for all the talk of austerity and cuts, the reality is that the prime minister hasn’t cut as much as some expected.

This is not to say there is much joy coming from the Treasury: there will be an average of £55 billion in shrinkage – all just to fill the much-vaunted black hole that some economists say has never been. actually exists now.

Read more:
The main points of the autumn statement at a glance

Millions of people pay more taxes after the fall declaration
All signs of the Labor budget | Beth Rigby

But if the prime minister wants to get public finances back where they are supposed to end in March, that will involve an extra £50bn in cuts – a massive austerity measure indeed. terrible.

In a sense, this is a very trivial financial event: obviously boring, obviously unpretentious and completely lacking in surprises. It’s more of an economic philosophy than an attempt to clean up a mess.

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Hunt questions fall statement

Much of the literature is devoted to explaining how the potential promises of the Truss era inflated public finances in one direction, before being dragged back to earth in the Sunak era.

The question now is whether removing all that spaghetti will really help the Conservatives rebuild trust with the British public.

And above all, the question is how the public will judge in the coming months.

OBR’s projections paint a picture of a recession unlike most of us for a long time – a recession not of the business sector or the financial system, but of the financial system. a recession affects consumers’ pockets.

It will be a very painful few months. The difference is that this time, the government isn’t afraid the charts tell you exactly that.

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