Much has been written about the coming year of economic misery. Rishi Sunak’s attempts to mitigate the impact of the pressure on living standards have been scrutinized and – generally – found to be insufficient. The post-mortem examinations carried out on the Chancellor’s Spring Statement were not flattering.
Think tanks specializing in the analysis of taxes, spending and living standards – the Resolution Foundation and the Institute for Fiscal Studies – had plenty to think about.
The former said the UK faces 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 dependent on state benefits. Both agreed that the current decline in household budgets was the continuation of a long-established trend.
Simply put, Britain has ceased to be a country where workers can expect to improve year after year once inflation is taken into account.
In 1990, real average earnings at today’s prices were around £22,000 a year. Over the next 18 years they steadily increased so that in 2008 they were £30,000. Since then, real average earnings have moved sideways and, if current trends continue, will only reach £31,000 by 2027. If the trend from 1990 to 2008 had continued, real average earnings would be higher from around £11,000 a year to around £42,000.
According to the Resolution Foundation: “With real wages in the midst of a third major decline in just over a decade, average weekly earnings are on track to rise by just £18 a week between 2008 and 2027, from 240 £ per week. if they had continued on their pre-financial crisis path.
This is an incredibly poor performance triggered by the global financial crisis of 2007-08. IFS Director Paul Johnson says the result of the near death of the global banking system has been “a decade and more of stagnant incomes and stagnant productivity”.
The pandemic and now the Russian invasion of Ukraine have dashed hopes that the 2020s could be an easier decade for the UK than the 2010s. After repeated lockdowns, domestic production is only just recovering all its losses related to Covid-19. Two years have been lost.
Inflationary pressures were already evident when the global economy began to recover in the middle of last year. Supply bottlenecks have driven prices higher and this trend has been amplified by events in Ukraine.
Sunak has offered some support by cutting fuel taxes, raising the National Insurance contribution threshold and – earlier – reducing municipal tax bills, but far from enough to offset the severity of the crisis. compression.
Those who rely on state benefits will suffer the most. The IFS says an out-of-work single parent with two children will try to make do with Universal Credit payments that are 8.6% lower in real terms than they were before the pandemic and 17.1% lower than when the temporary £20 per week increase to UC was in place.
The result of cuts of this size is obvious. Absolute poverty is set to rise next year – the first time it has happened in Britain other than during recessions.