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Working-age UK households will see no improvement in living standards before the next general election expected in 2024, according to analysis published by a leading think-tank.
The Resolution Foundation said on Wednesday that while average wages were now growing faster than consumer prices, as inflation started to subside, the gains would be offset by higher taxes and mortgage payments and the end of government cost-of-living payments.
About half of the £17bn increase in annual mortgage costs caused by rising interest rates has yet to be passed on to households because many have so far not had to renew fixed rate mortgage deals, the think-tank said.
Bills for people who need to remortgage next year could rise by £3,000, with the typical disposable income of borrowers projected to be 7 per cent lower in 2024-25 than in 2021-22.
The foundation also said that because tax thresholds have been frozen until 2028, growth in post-tax pay would be much slower than in gross pay. For those auto-enrolled into workplace pension schemes — for which the contribution threshold has also been frozen — real-terms growth in take-home pay, after accounting for pension contributions, could be “essentially zero” over the period from 2019-20 to 2024-25.
It expected real disposable income for a typical working-age household to flatline in 2024-25, having fallen by 4 per cent over the past two years.
The poorest 50 per cent of households, who have benefited more from one-off government support, would see their disposable income fall by roughly 1 per cent, it said, even assuming that the government raises working-age benefits next April in line with this September’s inflation rate.
“Should the government renege on the usual uprating measure, the scale of income falls for millions of families will be even greater,” the foundation said.
Meanwhile, higher interest payments on savings will boost income for pensioners, wealthier households and people who already own their home outright.
“The good news for the government is that Britain’s economic outlook is improving as it enters a crucial election year,” said Adam Corlett, the foundation’s principal economist. “The bad news is that the living standards outlook is still dire.”
The think-tank’s analysis suggests that Prime Minister Rishi Sunak will be fighting his election campaign against a bleak economic backdrop, despite recent data revisions that have made the UK’s performance since the pandemic look stronger and in line with other advanced economies.
The foundation said a typical person of working age would be 4 per cent poorer in 2024-25 than they had been in 2019-20, making the current parliament the worst on record for income growth.
“There is no example of a government retaining power with such weak median income growth in the general election year since comparable data began in the 1960s,” the think-tank noted.
The Treasury was contacted for comment.
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