Much has been written about the year of economic misery ahead. Rishi Sunak’s attempts to mitigate the impact of the squeeze on living standards have been pored over and – generally – found wanting. The postmortem examinations carried out on the chancellor’s spring statement were unflattering.
There was plenty for the thinktanks that specialise in analysing tax, spending and living standards – the Resolution Foundation and the Institute for Fiscal Studies – to mull over.
The former said the UK faced a year of cost-of-living misery during a parliament of pain. The latter said it was a bad time to be out of work and reliant on state benefits. Both were agreed the current setback to household budgets was the continuation of a now long-established trend.
Put simply, Britain has ceased to be a country where workers can expect to get better off year after year once inflation is taken into account.
In 1990, real average earnings at today’s prices stood at around £22,000 a year. During the next 18 years they rose steadily so that by 2008 they were £30,000. Since then, real average earnings have moved sideways and if current trends continue they will have risen to just £31,000 by 2027. Had the 1990-2008 trend continued, real average earnings would be about £11,000 a year higher at about £42,000.
According to the Resolution Foundation: “With real wages in the midst of a third major fall in a little over a decade, average weekly earnings are on course to rise by just £18 a week between 2008 and 2027, compared to £240 a week had they continued on their pre-financial crisis path.”
This is a staggeringly poor performance triggered by the global financial crisis of 2007-08. The IFS’s director, Paul Johnson, says the result of the near-death of the global banking system was “a decade and more of stagnant incomes and flatlining productivity”.
The pandemic and now the Russian invasion of Ukraine have dashed hopes that the 2020s might be an easier decade for the UK than the 2010s. After repeated lockdowns, national output has only just recovered all its Covid-19 losses. Two years have been wasted.
Inflationary pressures were already evident as the global economy started to recover in the middle of last year. Supply bottlenecks led to rising prices and that trend has been amplified by events in Ukraine.
Sunak has offered some support through lower fuel duty, raising the national insurance contributions threshold and – earlier – money off council tax bills, but nowhere near enough to compensate for the severity of the squeeze.
Those who rely on state benefits will suffer most. The IFS says a non-working single parent with two children will be trying to get by on universal credit payments that are 8.6% lower in real terms than they were before the pandemic and 17.1% less than when the temporary £20 a week uplift to UC was in place.
The upshot of cuts of this size is obvious. Absolute poverty is set to rise next year – the first time this has happened in Britain other than during recessions.
