£4,000 tax increase this year.

According to the report, UK households will face a £4,000 tax increase this year

Although reports suggest that the economy could avoid recession, for millions it has not, and many households in Britain will suffer a financial loss of roughly £4,000 this year.

As per the National Institute for Economic and Social Research (NIESR), low- and middle-income families were confronting the biggest economic hardship as the cost of living surged even as the government prepared to reduce its support for energy bills this year, adding pressure on Rishi Sunak.

Britain is likely to enter a long-term recession this year, with growth remaining close to zero as a result of high inflation and rising borrowing costs.

“With the cost of living crisis having a lasting effect on households for at least 7 million, it will certainly feel like a recession,” the report revealed.

Roughly 7 million households, or about a quarter of the population, are affected, struggling to meet high energy, and food bills, as per the reports.

Due to high inflation, the spending power of an average middle-income household is reduced by 13%, reaching approximately £4,000 in the next financial year.

The International Monetary Fund warned that Britain would be the only major industrial country to experience economic contraction this year, owing to high inflation and the Bank of England’s rising tax and interest rates.

As per the NIESR, a recession can be avoided, but the growth would still be “anaemic” as the effects of high inflation and rising interest rates are taking a toll on the economy, which is predicted to increase by just 0.2% this year.

The think tanks of Britain are suggesting the government reevaluate its steps while planning for economic growth, as public sector investment is required to boost the growth potential of the economy.

Suggesting further that the high energy cost can be tackled by introducing a “social tariff” and a variable cap that might help in lowering gas and electricity bills for the lower-income households that use less energy while encouraging efficient energy use for the more affluent, who typically use more.

According to the director of NIESR, the economy has taken a huge toll since the 2008 financial crisis, including the fallout from the Brexit referendum, the COVID-19 pandemic, and the most recent energy crisis, making low- and middle-income people poorer.

“What we’ve seen is the shocks that have come along have progressively made us poorer per person. We can talk about the average growth rate of the economy, but that masks household and regional inequalities.”

“We can point to areas where income per head has grown, but on average it’s low. And that low average also means many households have had deteriorating standards of living over time. That’s the key frustration the UK economy is facing.”

- Published By Team Timeswire

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