Brits are stashing away cash at rates not witnessed for nearly two years, driven by fears over potential tax hikes looming ahead.
The Office for National Statistics has disclosed that the savings ratio – the proportion of disposable income that remains unspent – soared to 11.1% in the first quarter of 2024.
This jump from 9.3% in the final quarter of 2023 marks the highest level since the third quarter of 2021.
This surge in savings comes alongside new Chancellor Rachel Reeves’ pledge of “iron discipline” on public spending, as she warned there’s “no magic money tree”, declaring: “Every commitment we make must be fully funded. That’s the approach I will bring to the Treasury.”
Whilst Labour has ruled out increasing income tax, National Insurance and VAT, they’ve refrained from offering similar guarantees on capital gains tax, pension tax relief or inheritance tax – fuelling anxiety about potential adjustments to balance the books, reports the Mirror.
The Institute for Fiscal Studies (IFS) cautioned that Labour had “not addressed the difficult choices on tax and spending that await”.
In its post-election assessment, the IFS stated: “Without further tax increases or spending cuts, it is hard to see how Labour’s plans will add up.”
Meanwhile, the same set of ONS data showed that real household disposable income experienced a boost of 2.5% in the first quarter of 2024 – the most substantial increase in two years – yet consumer expenditure barely budged, creeping up just 0.2%. Consumer confidence remains ‘fragile’.
Experts believe the conflicting market signals stem from a blend of declining inflation, improved real wages, and ongoing consumer caution.
Industry specialists in the retail sector have also highlighted the continuing uncertainty.
Reflecting this view, the British Retail Consortium recently stated: “Consumer confidence remains fragile as the country continues to adjust to the high cost of living.”
Labour is preparing to reveal a wide-ranging tax strategy for the Autumn Statement later this year, which will clarify how Ms Reeves intends to meet her objectives.
The Chancellor has pledged to ‘bring back economic stability’, reassuring business leaders earlier this month: “I want to send a message to businesses across the UK and around the world: Britain is open for business.”
