Children and the poor will be hardest hit by unprecedented weak growth in living standards that will see households £5,000 a year worse off than previously expected, a report warns today.
The Institute for Fiscal Studies (IFS) has said, based on the Office for Budget Responsibility (OBR)’s forecast, that median household income will not grow at all for the next two years and will be just 4% higher in five years’ time than it is now.
According to the independent think-tank, this would mean household income in 2021–22 will be 18% lower than could “reasonably” have been expected in 2007–08.
However according to the research, not everyone will be hit equally.
Pensioners will see their income rise twice as fast as the rest of the population, with average pensioner income to be 24% higher than it was in 2007–08.
But low-income households with children are projected to fare the worst with Conservative cuts to working-age benefits leading to a rise in absolute child poverty from from 27.5% in 2014–15 to around 30% in 2021–22.
Tom Waters, an author of the report and a Research Economist at the IFS, said the “long shadow cast by the financial crisis” has not have receded.
“Average incomes in 2021–22 are still projected to be £5,000 a year lower than we might have reasonably expected back in 2007–08,” he said.
And Andrew Hood, an author of the report and a Senior Research Economist at IFS, added that weak earnings growth combined with planned benefit cuts means that the absolute poverty rate among children is projected to be roughly the same in 2021–22 as it was back in 2007–08. In the decade before that, it fell by a third.
“Tax and benefit changes planned for this parliament explain all of the projected increase in absolute child poverty between 2014–15 and 2021–22,” he said.
Liberal Democrat Shadow Chancellor Susan Kramer accused Theresa May of “willfully reducing British economic growth by pushing for a hard and brutal Brexit”.
“With the upcoming Budget the government have a chance to change course. For all the talk about the ‘just about managing’ we have seen no real help for them. It is time for the government to act,” she said.
“I don’t think it’s justifiable, when so many people are tightening their belts, to say multi-millionaire pensioners still receive universal benefits across the board.
“There is already inter-generational tension and that will increase as the fundamental unfairness between the generations grow.”