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Two-decade UK wage stagnation to cost workers £15,000

UK chancellor of the exchequer Jeremy Hunt wage
In its overnight analysis of the autumn statement, the Resolution Foundation calculated that real wages are now not expected to return to their 2008 level until 2027. Photo: UK Parliament/Jessica Taylor/Handout via Reuters

UK workers are living through a two-decade wage stagnation, costing them as much as £15,000.

According to the Resolution Foundation, the chancellor Jeremy Hunt's tax heavy consolidation has piled further pressure on the “squeezed middle” as well as top earners.

It warned that personal tax rises announced during the autumn budget are set to deliver a permanent 3.7% income hit to typical households.

In its overnight analysis of the autumn statement, the think tank calculated that real wages are now not expected to return to their 2008 level until 2027.

Had wages instead continued to grow at their pre-crisis rate during this unprecedented 19-year pay downturn, they would be £292 a week, or £15,000 a year, higher, it said.

Read more: From income tax to pensions: What Jeremy Hunt's Autumn statement means for you

Resolution Foundation added that energy support from the government will cover less than a third of rising bills next year.

“As an energy importer during an energy price shock, Britain is getting poorer. Deciding how we do so was, to a significant extent, the choice facing the chancellor,” James Smith, research director at the Resolution Foundation.

“He has decided that households will do so with higher energy bills, higher taxes, and worse public services than previously expected.

“Whether or not making the choices was tough, the reality of living through the next few years will be.”

Further analysis showed that while the government will proceed with the uprating of all benefits in line with inflation next year, it will make a huge difference to those on low-to-middle incomes, representing the biggest rise since 1991.

Read more: FTSE rises as traders digest autumn budget aftermath

Compared to the widespread suggestion of an earnings-related uprating (5.5%), this will see households on universal credit (UC) receive £244 extra on average next year.

It comes as the Institute for Fiscal Studies (IFS) warned that higher UK taxes “look to be here to stay” thanks to an ageing population and pressure to boost funding for public services.

Real household disposable income is set to fall by 7% over the next two years — the largest fall in recorded history this year, followed by the second-largest fall in recorded history next year.

Around 2 million people, or 4% of adults, will be paying income tax at 60% or 45% by 2027-28. This is more than we were paying the higher 40% rate back in 1990.

By the end of the freezes, almost 15% of the adult population will be higher (40%) or additional-rate (45%) taxpayers, the IFS said. This amounts to around nearly 8 million people.

Read more: UK consumer confidence hovers near record low: ‘Good news remains in short supply’

“After years of stagnation, household incomes are set to fall and then recover only gradually, while taxes rise and public services continue to struggle,” Paul Johnson, IFS chief, said.

“The truth is we just got a lot poorer. We are in for a long, hard, unpleasant journey; a journey that has been made more arduous than it might have been by a series of economic own goals. Mr Hunt appears to have recognised this.

“After years of cakeism, his colleagues, the opposition, and we the voters need to take that fact on board too.”

The IFS added that even after this year's spike has passed, higher interest rates will push up debt interest to a much higher level than we've enjoyed in recent years.

Watch: How to save money on a low income