New PM’s term in office to be marked by deepest living standards squeeze in a century
Britain’s next prime minister is set to have their coming term in office marked by deepest living standards squeeze in a century, new research has shown.
According to the Resolution Foundation, real household disposable incomes are on course to fall by 10% over this year and in 2023, while the number of people living in absolute poverty is set to rise by three million.
Relative child poverty is also projected to reach its highest level (33% in 2026-27) since the peaks of the 1990s.
The figures mark the sharpest cost of living crisis in a century, and “highlights the scale of the task facing the new PM when they take office on Monday”, the Foundation said.
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The report, entitled “In at the deep end: the living standards crisis facing the new prime minister” – incorporates the Bank of England’s latest economic forecasts.
It also includes the £30bn of policy support announced since March, to examine prospects for household incomes over the difficult winter ahead, the next two years of the new PM’s time in office, and into the second half of the 2020s.
The data shows that Britain faces a bleak winter for living standards, with soaring energy bills behind the bank forecasting inflation to peak at 13%, and analysis projecting even higher inflation of 15% for the poorest tenth of households.
The Foundation added that the outlook has worsened since the bank’s forecast in August, with Citi projecting an inflation peak of 18%.
In addition to this, the living standards crisis will stretch well beyond this winter into next year and 2024.
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Real earnings, which are already falling at their fastest rate since the Queen’s Silver Jubilee in 1977, are forecast to continue falling until at least mid-2023, by which time all real pay growth since 2003 will have been wiped out.
“This unprecedented two-decade-long wage depression is a consequence not just of record inflation today, but of over 15 years of economic stagnation driven primarily by historically weak productivity,” the report said.
It added: “The overall impact of these forecasts, which show what will happen without further significant interventions from the government, would see real household disposable incomes fall by 5% this year (2022-23).
“And although inflation will ease in the following year (2023-24), typical incomes are set to fall even further, by 6%, as the one-off government support for incomes comes to an end.”
Read more: Energy bills support of £400 is not a discount, says ONS
The group called for urgent support from the new prime minister, adding that maintaining the previous chancellor’s commitment to raise benefits next year in line with September’s inflation rate is essential to protecting poorer households from the higher cost of essentials.
“Britain is already experiencing the biggest fall in real pay since 1977, and a tough winter looms as energy bills hit £500 a month. With high inflation likely to stay with us for much of next year, the outlook for living standards is frankly terrifying,” Lalitha Try, researcher at the Resolution Foundation, said.
“Typical households are on course to see their real incomes fall by £3,000 over the next two years – the biggest squeeze in at least a century – while three million extra people could fall into absolute poverty.
“No responsible government could accept such an outlook, so radical policy action is required to address it. We are going to need an energy support package worth tens of billions of pounds, coupled with increasing benefits next year by October’s inflation rate.
“The new prime minister also needs to improve Britain’s longer-term outlook, which can only be achieved by a new economic strategy that delivers higher productivity and strong growth.”
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