Have you got a spare £1,500? New figures show every household will be £1,500 worse off over next five years.

2 August 2011

coinjarAmidst coalition in-fighting and disappointing growth figures only just the right side of recession, the last thing the Government needs is an acronymic think tank telling us all just how bad it’s going to get. Unfortunately, the International Monetary Fund (IMF) have released a new report into the finances of the UK. And it’s not exactly a laugh a minute.

Although the annual 'healthcheck' on the UK finances said Government cuts had ‘significantly reduced the risk’ of a sovereign debt crisis, the report warned cutting tax might be necessary if the rate of economic growth did not improve as they predict over the medium term.

However, the IMF have also quantified the effect of belt-tightening and benefit-slashing on your disposable income, “the fiscal consolidation will reduce the saving rate by about 3½ percentage points by 2016”. As total disposable income last year was £974 billion, the IMF estimated that the cost would be roughly £35 billion annually – which, when shared between Britain’s 26 million households, works out at about £1,500 each. Nice.

The report also warned that stagnant house prices would knock 12 per cent off families’ ‘tangible’ wealth over the next five years, compounded by the high rate of inflation and rises in food and energy costs.

The damage to household finances would weigh heavy on economic recovery for years,  as consumers will have less money to spend on the high street, concluded the report. Owing to the weakness of consumer spending, the IMF is predicting growth this year of 1.5 per cent, lower than the official forecasts of 1.7 per cent.

Lower than expected growth might mean the Government has to look at cutting tax to stimulate demand. Labour are clearly gleeful at the report’s contents,  reiterating Ed Balls’ call for a VAT rate cut to 15%. However, besides the trauma this would cause retailers (again), would  lower VAT actually stimulate the economy or would households just pocket the savings to try and get back the £1,500 they have lost?

Still. That £1,500 is probably the cost of a (small/cheap) family holiday. Good job the PM isn’t rubbing it in by preparing to go on a second family holiday...

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