UK workers ‘will be worse off in 2024 than in 2019’
The dire prediction comes from the Resolution Foundation which warns that households are on track for a year of “income stagnation” in the run-up to the next election.
The think tank said poorer families are set for further income falls, as tax rises, the end of cost-of-living payments and higher housing costs offset an improving economic outlook.
The foundation’s latest Living Standards Outlook brings together forecasts on pay, jobs, housing costs, tax and benefit changes and other economic trends to examine what lies ahead for the living standards of different groups in the run-up to the next General Election.
There is some good news – inflation has fallen from its October 2022 peak of 11.1% and average earnings are now growing faster than prices. The Bank of England’s interest rate rising cycle is also likely approaching its end.
But many economic headwinds remain. Around half of the £17bn of higher annual mortgage costs that rising interest rates have brought about is yet to be passed on to households, meaning those remortgaging next year could see their annual payments rise by about £3,000.
Wage gains swallowed by higher taxes
The government’s cost of living payments are also due to end after this winter, while some of the gains from stronger pay growth will be swallowed by higher taxes.
Inflation-adjusted gross pay is set to rise by 2.9% over the course of the parliament (2019-20 to 2024-25), but frozen tax thresholds mean that for the typical employee, post-tax pay will rise by just 0.6% in real terms over this period.
Taking all these trends together, the foundation’s analysis finds that real disposable incomes for typical working-age households are set for zero growth next year (2024-25), having fallen by 4% over the past two years (2021-22 to 2023-24).
The outlook is even worse for low-to-middle income households, with the poorest half on track to see another disposable income fall of around 1%. A further 300,000 people are set to fall into ‘absolute poverty’.
These projected income falls would happen even if working-age benefits were uprated next April by this September’s inflation rate, as is usual, which is expected to be around 7%. The foundation warns that, should the government renege on the usual uprating measure, the scale of income falls for millions of families will be even greater.
‘Stagnant living standards rather than boomtime Britain’
Adam Corlett, principal economist at the Resolution Foundation, said: “The good news for the government is that Britain’s economic outlook is improving as it enters a crucial election year. The bad news is that the living standards outlook is still dire, with overall stagnation and further income falls on the way for less well-off households.
“Rapidly rising interest rates mean that families remortgaging next year could see their bills rise by £3,000, while richer and older households are set to take the lion’s share of Britain’s £90bn savings income boom.
“The worst of the cost-of-living crisis may be behind us, but except for those with significant savings, it is stagnant living standards rather than boomtime Britain that the immediate future has in store.”