The Office for Budget Responsibility (OBR) has forecast that real household disposable income (RHDI) will grow at a historically slow pace, increasing by less than 0.1% per decade. This means that by the end of the post-pandemic decade, RHDI will be only 1% higher than its pre-Covid level. The report highlights a continued decline in productivity and real wages, with growth averaging just 0.25% annually over the past decade and expected to fall further in the near term. By 2029-30, the OBR predicts RHDI growth will average less than 0.1% annually, underscoring concerns about stagnant living standards.
The budget includes a £100 energy payment for millions of households, aimed at easing the cost-of-living crisis. However, the OBR's findings suggest that the government's approach to economic growth is not delivering significant improvements in living standards. Treasury Minister Torsten Bell defended the budget, arguing that it represents a shift away from past neoliberal policies and includes transformative changes to energy pricing. He dismissed claims that the budget lacks ambition, emphasizing that the government is taking a different approach to fiscal devolution and local governance.
Despite the energy payment, the budget has faced criticism for leaving key questions unanswered, particularly regarding how the government will fund defense spending and account for higher inflation in departmental budgets. The Treasury has revised defense spending downward due to lower-than-expected pension costs, prompting backlash from opposition parties who argue this undermines national security. Meanwhile, the budget's tax measures, including a bank surcharge and gambling taxes, are expected to raise £7bn annually by 2031-32, but the overall spending pot for government departments remains largely unchanged, signaling potential real-term cuts in unprotected areas.
The budget has also been criticized for deferring tough decisions to the upcoming spending review in 2027. Analysts suggest that the government is adopting a 'picky bits' approach, focusing on incremental changes rather than bold reforms. The New Economics Foundation argues that the budget missed an opportunity to address inflation through more ambitious cost-of-living measures. As the government prepares for its long-awaited spending review, the challenge remains to balance fiscal responsibility with the need to improve living standards for all citizens.