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Real average earnings in Britain will not return to their 2008 peak until 2025, and households face the longest sustained fall in living standards for at least 60 years, if the projections in Wednesday’s Budget prove correct.
Economic growth was sharply downgraded by the Office for Budget Responsibility and the Resolution Foundation think-tank said the consequences would be grim for households.
“While the result for the public finances is grim . . . the outlook for family finances . . . is worse,” said Torsten Bell, director of the foundation. “Our incomes are expected to be £540 lower [by the start of 2022] than previously thought and pay is not set to return to pre-crisis levels until the middle of the next decade.”
Philip Hammond, the chancellor, said in his Budget speech that he understood “the frustration of families where real incomes are under pressure”.
But he announced little in the way of new measures to support household disposable incomes.
The think-tank calculates that average household disposable income will fall in real terms by 3.1 per cent over the period from the end of 2015 to spring 2022. This is not as deep as the 5.1 per cent fall in the aftermath of the financial crisis, but is the longest squeeze since data began to be collected in 1956.
The predicted fall in living standards is driven by slow wage growth. The OBR’s new forecasts imply that by the start of 2022 average annual earnings will be £1,000 lower in real terms than they had predicted they would be in March.
The hit to annual pay would have been even larger had the OBR not revised up its forecasts for hours of work.
In March, it predicted that the average hours worked by UK workers would fall by 1.5 per cent by 2022. But the fiscal watchdog’s updated forecast now predicts almost no reduction in average hours of work over the next five years.
Although Mr Hammond did announce a net giveaway in the budget, most of the largesse was targeted at investment spending, the NHS and government departments preparing for Brexit.
The chancellor’s headline measure to garner support with younger voters — a cut in stamp duty for first time home buyers — will lower tax revenues by about £600m a year but is predicted by the OBR to generate just 3,500 additional first home purchases a year.
“The cost of the policy equates to £160,000 per additional first-time buyer in 2018-19 . . . enough to directly buy and give a typical house to a first-time buyer in 26 per cent of English and Welsh local authorities,” the foundation added.