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Britain is facing two decades of lost growth because Rishi Sunak has failed to incentivise work by piling taxes on families, according to an economic taskforce set up by Liz Truss.
The Growth Commission said the current Prime Minister had pushed the economy into a low growth trap, with GDP per head expected to grow by just 1pc annually over the next 20 years.
It said Britain’s high tax burden was partly to blame alongside onerous net zero regulations, weak public sector productivity and planning rules that had left developers strangled by red tape.
So-called GDP per head was only 0.1pc higher in the second quarter of 2023 than its pre-Covid level, according to official data.
The Growth Commission said this showed “living standards are stagnating” as it urged Chancellor Jeremy Hunt to slash taxes and implement sweeping reforms to planning, welfare and the public sector in the Autumn Statement.
Its growth budget warned: “If we carry on the same way we are likely to continue to stagnate with rising taxes or borrowing or both to pay for ever-growing public spending. This won’t work”.
The Commission warned that a six-year freeze in income tax thresholds introduced by Mr Sunak would be the equivalent to a 9p increase in all rates of income tax by the end of the decade as workers are forced to hand more of their pay rises to the taxman.
Rachel Reeves, the shadow chancellor, said separately on Monday that addressing stealth taxes would be a priority for an incoming Labour government, comparing fiscal drag to a government that was “picking the pockets” of working people.
She said: “The taxes I’m most concerned about are the taxes on working people.
“It does concern me that people on average earnings are paying more in tax, are dragged into higher tax brackets, and every time somebody gets pay a rise, there’s a chance that they’re going to be dragged into an even higher tax bracket so you know the pay that’s supposed to keep up with the rising cost of living – 40pc of it is then being taken in taxes.”
The Growth Commission urged Jeremy Hunt to end frozen tax thresholds by 2024-25, as it warned that continuing with the policy would push the tax burden to a new peacetime high before the end of the decade.
The Commission called for a benefits shake-up and a review of public sector productivity, which remains below pre-pandemic levels as public spending continues to grow faster than the economy, in order to revive growth.
It claimed that its package of reforms could add 23pc to the economy, putting an average of £11,300 more in every person’s pocket by 2044.
The Commission renewed its call for corporation tax to be slashed from 25pc to 19pc and 15pc by 2040.
It also urged Mr Hunt to continue a flagship business tax break he introduced that allows companies to offset 100pc of the cost of investment in qualifying plant and machinery in one go against their tax bill, saving up to 25p for every £1 spent.
Douglas McWilliams, co-chairman of the Growth Commission, said: “Short term decision making has delivered stagnation. We cannot ignore this and we can’t sustain it. We can see twenty years of stagnation with a record tax burden.
“Something will have to give, whether it is employees resisting falling living standards or markets refusing to buy more and more debt. We need policies to be genuinely long-term in their ambition and aggressively target growth.”
Ms Reeves said making full expensing permanent was also a priority, although she poured cold water on any prospect of cuts to the headline rate.
She said: “I want to give businesses greater certainty about the tax regime, not chopping and changing with tax policy every year or two.
“If it is affordable, I would like full expensing to be made permanent because I think that would be a lot more effective than just rolling it forward every year and businesses not knowing what the regime is going to be – that has to be affordable. But for businesses that would be my priority rather than, you know, more cuts to corporation tax.