Britain is on course for one of the worst periods of income growth since records began, according to an analysis outlining the economic fallout from the Covid-19 pandemic.
With the government already under pressure to improve the financial aid it is providing, it emerged that real household disposable income is set to rise by just £220 from 2019 to 2024, the expected period of the current parliament, a lift of just 1%.
The analysis by the Resolution Foundation thinktank, based on official figures, highlights how long the economic scarring from the pandemic will take its toll on household finances. It concluded that it would mark the second worst parliament for income growth since 1955, when records began. Only the 2015-17 parliament, when incomes actually fell by 0.1% a year, has a worse record.
It comes with unemployment set to peak at 2.6 million in mid-2021 and remain high long after the pandemic is over, the foundation said. It warns that a plan to cut universal credit and tax credits in April would see around six million households lose more than £1,000 a year. While many Tory MPs expect the chancellor, Rishi Sunak, to cancel the cut, he did not do so at last week’s review of public spending.
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 the 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.”
The hit to household income emerges amid a growing outcry over the plight of 2.9 million self-employed workers who say they are facing “a miserable Christmas period” after being excluded from the government’s financial aid schemes. London’s mayor Sadiq Khan, Manchester mayor Andy Burnham, unions and business groups have signed a powerful open letter to Sunak calling on him to intervene.
The groups who have not been helped include the newly self-employed, directors of small limited companies, self-employed workers who have earned £50,000 or more in trading profits in recent years and certain types of freelancers.
The authors of the letter state they are “deeply concerned about the impact of the current gaps in the financial support schemes on our workforce. The failure to address these gaps in the Spending Review this week leaves these workers facing an extremely difficult winter.” The letter, whose signatories include the Bectu and Prospect unions, as well as the Federation of Small Businesses and the Institute of Directors, continues: “We understand that these schemes were set up in haste and that it was difficult at the outset to broaden their scope, however these schemes are now set to run for at least a year and the continued omission of these workers is causing immeasurable hardship and huge mental health consequences for those impacted and their families.
“These workers are facing a miserable Christmas period, and the evidence is mounting that many may turn away from self-employment and freelance work in the future. This is a tragedy for these individuals, their families and their businesses, but it is also a disaster for the economy.”
There have been claims that as many as one million people in the UK are planning to give up being self-employed after seeing their earnings decimated by the Covid-19 pandemic. A report from the London School of Economics found that a two-decade-long trend in favour of more people working for themselves was now under threat.
