“Just about managing” families on the lower end of the pay spectrum are set for three years of stagnating living standards, a new report has warned.
The Resolution Foundation think tank said average incomes are set to rise over the years before the next general election in 2022, following real-terms falls which made 2017/18 the third-worst year for incomes in 25 years, The Press Association reports.
But eight million working households on low and middle incomes still face flat or falling living standards between 2017/18 and 2019/20, suggesting Britain may be facing its first sustained rise in inequality since the late 1980s.
The report blames the rollout of £14 billion in welfare cuts, which will more than offset rises in the minimum wage and predicted pay increases for families receiving in-work benefits.
The people described by Prime Minister Theresa May as “just about managing” look set for a rise in incomes of just 2% – the equivalent of £300 – over the decade to 2020, compared to 10% (£3,100) for higher-income working-age households, said the Foundation.
On some measures, levels of income inequality are projected to reach record highs by the early 2020s, having fallen in the immediate aftermath of the financial crisis.
Resolution Foundation director Torsten Bell said: “This parliament risks seeing the first sustained rise in income inequality since the 1980s.
“But the story this time around is less about the rich soaring further away, and more about poorer families falling further behind as they bear the brunt of £14 billion of welfare cuts.
“It is policy decisions, not capitalism, that look set to drive living standards of low and middle income families down and inequality up in the years ahead. Recent years of economic anxiety and political division should have taught us that this is the last thing Britain needs.”
The Foundation’s calculations are based on the latest economic forecasts from the Government’s Office for Budget Responsibility along with policy impact assessments.
It forecast that the pace of growth in median incomes will peak at 1.3% by 2022 – well below the 2.1% norm enjoyed before the financial crash of 2008.
But the think tank said their projections could by fundamentally altered by changes such as:
The reversal of planned benefit cuts, funded by higher income taxes
The return of the earlier jobs boom, which petered out in 2017
A return to pre-crisis levels of pay growth
An easing of pressures from private rents
Shadow chancellor John McDonnell said: “This report lifts the lid on the living standards crisis facing many working families in our country, and which Philip Hammond refuses to address.
“Some of the poorest in our communities have been forced to shoulder the burden of almost eight years of Tory economic failure, and they need an urgent change of direction from the Chancellor next month at the Spring Statement.”