Real household disposable income (RHDI) is set to grow by just 1% per person, or £220 ($293), over the course of the current Conservative government, which runs to the end of 2024.
This would make it the second worst parliament for living standards since records began in 1955, according to a new Resolution Foundation analysis.
The research published today analysed the Office for Budget Responsibility’s (OBR) latest economic outlook and historic incomes data and highlights how long COVID-19 economic scarring will take its toll on both the public and household finances.
This will leave prime minister Boris Johnson with work to do if he wants to claim that people “are better off than they were five years ago” at the next election, said the think tank.
Only the 2015-17 parliament, when incomes actually fell by 0.1% a year, has a worse record on raising living standards. This income fall was caused by the sterling devaluation in the wake of the EU referendum, which caused inflation to rise and real pay packets to fall in 2017.
The research notes that the 2005-10 parliament, marked forever by the financial crisis, saw incomes grow by 0.7% a year on average, while the 2010-15 parliament saw incomes grow by 1.2% a year.
The prolonged 15-year living standards squeeze that Britain has experienced in the wake of the financial crisis is a far cry from the income booms of the 1960s, 1970s and 1980s.
The Foundation says that hopes of an imminent of vaccine roll-out and a return to normality in 2021 could – and should – see Britain experience a strong economic recovery next year, with the OBR expecting the economy to grow by 5.5 per cent next year.
However, with unemployment set to peak at 2.6 million in mid-2021 and remain elevated long after the pandemic is over, securing a stronger living standards over the course of the parliament will need to be a top priority for the government.
The Foundation warns that the planned cut to Universal Credit and Tax Credits in April 2021, which would see around six million households lose over £1,000 a year (including one-in-three working age constituents in ‘Red Wall’ seats) would be the worst possible way to kick off a post-Covid economic recovery.
Adam Corlett, principal economist at the Resolution Foundation, said: “On Wednesday the chancellor warned that the economic emergency was just beginning – and that’s true of both the public and household finances.
“Improving the stark outlook for living standards should be a top priority for government once the pandemic is over – especially if the Prime Minister wants to go into the next election claiming that people are better off than they were five years ago.
“The chancellor can start right now by cancelling the planned cut to Universal Credit next April that would dash hopes of any recovery for millions of households.”
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