Wage growth to be worst since World War Two, IFS think-tank warns

UK households are facing their worst period for earnings growth since World War Two after a sharp downgrade in the economic outlook, a leading think-tank has warned.

The Institute for Fiscal Studies (IFS) said workers were facing the "extraordinary and dreadful" prospect of more than a decade without real terms wage growth, in a briefing a day after the Chancellor's Autumn Statement.

It said new forecasts produced by the independent Office for Budget Responsibility (OBR) showed that the outlook for living standards "has deteriorated rather sharply since March".

The downgrade will mean national income £30bn lower than it had projected in March - equivalent to £1,000 a year per household.

It prompted shadow chancellor John McDonnell to say: "This lost decade for living standards is unprecedented in modern British history and is a damning indictment of the total, abject failure of the Tories' economic policy."

IFS director Paul Johnson said that lower wage growth and higher inflation over the next five years meant that real wages would still be below their 2008 level in 2021.

Mr Johnson said: "One cannot stress enough how dreadful that is - more than a decade without real earnings growth.

"We have certainly not seen a period remotely like it in the last 70 years."

In separate analysis, the Resolution Foundation said that it would be low and middle income families "who feel the tightest squeeze".

The IFS assessment comes after the OBR said the UK now faced £122bn in extra borrowing over the next five years, with £59bn attributed to the Brexit vote.

Leading pro-Brexit MPs have attacked the economic outlook as too gloomy but the IFS said it was more optimistic than other forecasters, including the Bank of England.

The OBR sees growth slipping over the next three years but its figures were "noticeably more upbeat" than those produced by the Bank, the IFS said.

Its outlook for widening borrowing over the next few years was "a somewhat smaller hit than many forecasters were suggesting", Mr Johnson added.

He said Philip Hammond's plans represented a loosening of fiscal policy by about £10bn a year.

But the Chancellor chose to prioritise "jam tomorrow" in the form of greater investment rather than "jam today" for the "just-about managing" (JAMs) or public service, Mr Johnson added.

He said it was striking that Mr Hammond had not responded to calls for more money for the NHS or social care but suggested "he won't be able to do that for much longer".

Instead, the Chancellor had made a "significant" addition to capital spending - which at 2.3% of gross domestic product (GDP) would match Labor's pre-recession plans and be well above the average over the last 30 years.

Mr Johnson suggested that the plans were more like those of former shadow chancellor Ed Balls than his predecessor George Osborne.

There was backing for Mr Hammond's "rather woolly" new aim of balancing the Government's books some time in the next Parliament, as he ditched Mr Osborne's fiscal rules.

"Given uncertain times... a degree of woolliness is probably sensible," said Mr Johnson.

Even (Taiwan OTC: 6436.TWO - news) then, achieving this aim would still require "another dollop of austerity" on top of the decade the UK will have already seen by that time.

Meanwhile, the decision to freeze fuel duty for the seventh year in a row, at a cost of £900m a year, was an area that was "turning into a really big problem" and the Government ought to say whether the freeze would in fact would be permanent, the IFS said.

There was little in the statement to affect living standards, with any measures announced paling into insignificance compared to benefit and tax credit cuts announced year. or tax changes implemented since 2010, it added.