Incomes to rise next year, but only for some…
The Foundation’s annual living standards outlook which analyses the OBR’s latest economic forecasts with policy impact assessments, said low and middle income households risk missing out with three years of stagnating living standards lasting until 2020.
Typical household incomes are likely to fall marginally this financial year (2017/18). This would make it the worst year for income growth since 2011/12, and the third worst in the last 25 years.
However, inflationary pressures are easing and there are some signs of pay growth rising. As a result, the Foundation forecasts that median incomes will start to rise again in the next financial year (2018/19) and for the remainder of this parliament. However, the pace of growth could be sluggish, peaking at 1.3% a year, below the 2.1% average rate of income growth households saw before the financial crisis.
Britain’s eight million working age families on low and middle incomes risk missing out on any growth in the coming years, with three years of flat or falling living standards between 2017/18 and 2019/20. These families are likely to see an income rise of just £300 (or 2%) over the decade to 2020, compared to a £3,100 rise (10%) for higher income working age households. It attributed this fall to cuts in working age benefits.
This echoes a previous survey from the Foundation, which showed average real hourly earnings for the under-30s fell 13% between 2007 and 2014, highlighting an increasing intergenerational wealth gap.
However, the Foundation said that policies such as the National Living Wage should continue to reduce wage inequality over the parliament term, but this is more than offset by the rollout of £14bn welfare cuts.
Adam Corlett, senior economist analyst at the Resolution Foundation, said: “2017 was a disastrous year for living standards as high inflation caused pay packets to shrink and made the cash freeze in working age benefits bite harder. The good news is that living standards are set to start rising again next year. The disappointing news is that the recovery is set to be slow. And the really worrying news is that low and middle income households could miss out altogether, with three years of stagnating incomes running right through to 2020.”
Darren Philp, director of policy at The People’s Pensions, said: “Things aren’t easy and household budgets are increasingly stretched, and we understand the potential impact that auto-enrolment may have on those struggling to make ends meet. But it is hugely important that people save what they can for their retirement, and bear in mind the significant boost to people’s savings that comes from employer contributions if they stay auto-enrolled into their pension. Over the long term these all rack up and can make a huge difference in retirement.”