UK households are in the grip of the worst decade of income growth since at least the 1950s, according to economists. Disposable incomes are set to rise by just 2% during the 2020s, the Institute for Fiscal Studies (IFS) said, driven by high inflation, weak wage growth and tax increases.
Weakest decade of income growth
Tom Wernham, senior research economist at the IFS, said this decade's growth compares with a 12% rise in household disposable incomes during the 2010s, which was itself low by historical standards. “This is looking like a really bleak decade for household income growth,” he added.
Budget measures 'relatively small'
The IFS also said measures announced in the Budget to help with the cost of living were “relatively small”. The three main announcements — £100 off energy bills for the majority of households, an extension of a VAT cut on electricity, and a fuel duty freeze — are worth a combined £5 billion over the next nine months.
These measures equate to around £140 for the average household, or about a third of the predicted £400 jump in energy bills in the months ahead. IFS Director Helen Miller said: “The key choice was to give a relatively small payment to around 80% of households, rather than a larger payment targeted on a smaller group. Alongside other temporary measures, it will help households over winter. But winter is coming and it still looks tough for many families across the country.”
Energy bill changes and spending concerns
The government also announced standing charges would be removed from gas bills and moved to the unit rate, or what customers pay for what they actually use. Ministers have claimed the move, which is not expected until next winter, will save the average household £45 a year. However, the IFS said the poorest 30% of households would only benefit by £13 a year.
In its post-Autumn Budget analysis, the IFS warned ministers could be forced to find another £17 billion if they wanted to avoid a cut to government departments' spending plans. The IFS said Chancellor John Healey had left plans for overall departmental spending across the rest of the parliament broadly unchanged in cash terms.
“In the face of higher inflation, this means that the real-terms value of budgets has been cut,” Ms Miller said. “Taken at face value, and alongside the inherited plans to slow down spending growth sharply in coming years, that is a big choice. It effectively implies that some public services will see real-terms cuts in next year’s Spending Review.” The £17 billion estimated top-up comes before the £11 billion of commitments to increase defence funding, the IFS added.
