THE RESOLUTION Foundation has published its latest update on ‘The Living Standards Outlook 2022′ where it outlines the living standards crisis and challenges facing the new Prime Minister. It makes stark reading on the increasing levels of poverty and the decline in real household income.
The Foundation says of the report ‘In at the deep end’:
“The current cost of living crisis is set to dominate the new Prime Minister’s agenda not only this winter, but also in the following months and years. This paper sets out our latest projections for how household incomes may change across the income distribution, both in the short-term and up to 2026-27.
These forecasts show the problem is not just deep, but is also much longer lasting than current talk of a “winter crisis” implies. These large income falls are caused by a combination of rising energy bills, and weak productivity and earnings growth over the last fifteen years.
A significant policy response from the new Prime Minister is needed, otherwise they risk overseeing the culmination of not just the worst two years for incomes in a century, but also the longer-term culmination of two lost decades for British households living standards.”
The key findings from the report are:
“Although there is considerable uncertainty over energy prices, inflation is projected to top 13 per cent even under relatively conservative projections (potentially reaching 15 per cent for the poorest). This could leave average real pay in Q2 2023 9 per cent lower than two years earlier, and wipe out all pay growth since 2003. And even with a 10 per cent benefit uprating in April 2023, the decline in the real value of benefits over 2022 and 2023 will not be restored until April 2024.
Without any new policy changes, the typical real household income is projected to fall by 5 per cent in 2022-23 and a further 6 per cent in 2023-24. The combined hit of 10 per cent would likely be the most negative two-year change in the last century at least – twice the size of the fall between 2009-10 and 2011-12 – and would equate to a £2,800 drop.
A combination of earnings stagnation and the energy shock means the country is on track for two lost decades of income growth. Average real incomes are set to be 7 per cent lower in 2024-25 than in 2019-20 (the worst parliament on record for growth, by a large margin). Indeed, incomes across the distribution are currently projected to be lower in 2026-27 than in 2016-17 and only marginally above where they were in 2006-07.
The number of people living in absolute poverty is currently projected to rise from 11 million in 2021-22 to 14 million in 2023-24 – a rise from 17 to 21 per cent, including 30 per cent of children. Relative child poverty is projected to reach its highest level since the peaks of the 1990s.
Large changes to the economic forecast and/or policy will be required to significantly improve this outlook. Extra wage growth of 5 percentage points by 2026-27 boosts the typical household income by 3 per cent and poorer households’ income by 1 per cent (while reversing the personal National Insurance rise boosts them by 1 and 0 per cent respectively), but still leaves incomes lower than in 2019-20.”