Dear Andy 26 June 2026 Morning all, I don’t know why major international football tournaments provoke upheaval on Downing Street, but there’s definitely a pattern emerging. So, we’ve got a special edition for you, laying out the big questions facing the next PM, and a few suggestions of how to respond. Before we get to that though, please do sign up for our very exciting event on Monday (online tickets still available) where we’ll be launching our latest piece of analysis on the NEETs crisis, with Alan Millburn. Have a great weekend, Ruth Chief Executive Resolution Foundation Dear Andy, Yes, we know it’s not DEFINITE yet, but the writing’s on the wall. Enjoy the honeymoon while it lasts because, as we’re about to show you, tough decisions lie ahead. Meet the new trade-offs – same as the old trade-offs. Holding yourself to a higher standard (of living) You’re a fan of RF, so you know economic progress for Britain’s families stalled in the mid-2000s. But what’s happened so far this Parliament? The good news is it got off to a decent start. The bad news is that nobody noticed and forecasts are looking much worse. With one good year and one bad year, households are over £1,000 better off. Median incomes have grown an average of 2.2 per cent a year, so your predecessor can claim a better annual rate so far than any Parliament since 2010. Indeed, before war in Iran broke out, this year was set to be alright for median families, and pretty good for poorer ones. But here’s the rub – the outlook doesn’t look great from now on. The OBR don’t expect much wage growth, while energy prices have spiked sufficiently to wipe as much as £500 off typical household living standards this year. That leaves forecasts suggesting this will be a better Parliament for living standards than the last, but that most of the growth has already happened by the time you take office. So, how can you beat the forecasts? Living, at what cost. Public discontent about the cost of living has hardly budged, remaining the top priority for voters (of every stripe). There are two cost of living crises awaiting you – an immediate one and a chronic one. On the immediate one, count your lucky stars. Based on current wholesale oil and gas prices, we will not see the full blown winter energy crisis that many feared at the start of the war. Latest forecasts suggest that energy bills this winter will be around 6 per cent higher than last – still tough for some families, but not requiring emergency support. But please don’t wait for another war before instructing the Treasury to make sure they can deliver a targeted support scheme when we need it. Oh, and it would be really bad if we struggled to get inflation down again. The best way you can help the Governor with this is not to borrow more than planned this year. Now, the chronic problem – putting “more money in people’s pockets…so that they can have a better life”. In recent years, inflation has run 0.7 percentage points higher for the poorest families than the richest, due to a sharp rise in the price of essentials. Our next chart shows that (in nominal terms) energy prices remain 73 per cent higher and food 47 per cent higher than in 2016. At the same time, weekly earnings have only risen 51 per cent, leaving households treading water. Tackling the cost of energy bills should remain the top priority when it comes to the cost of living. But there’s no such thing as a free lunch – borrowing to fund this boon would be inflationary and ultimately self-defeating. Taking the remaining levies off household electricity bills would cost £2.6 billion. This can be funded by closing death and exit loopholes in capital gains tax, with change left over. Feeling stressed? Some good news on the cost of living: you can buy more Guinness in Trafford from one hour’s work (4 and change) than anywhere else in the country. Mind the rent gap Most families’ largest expense is housing, and there’s an immediate crisis coming down the track – as you know, and our next chart shows. The gap between the value of rental support in the benefits system (LHA) and actual rents is approaching a record expanse. In your first few months as Prime Minister, we expect that gap to exceed the level at which Sunak and Hunt chose to address it. And this isn’t just about prices in London and the South East – the North East is second from worst for families not covered by LHA. This is increasingly untenable, with the number of households in temporary accommodation more than doubling since 2010. Addressing this will cost but you could fund it even within the working-age welfare budget, for example by increasing the ‘taper’ on Universal Credit from 55 to 59 per cent. Overall, this combined reform would redistribute from relatively better-off benefit claimants towards the very worst off. Ultimately, we need to build more homes. But we’re not on track to meet that pesky 1.5 million homes target you’re about to inherit. In fact, every region is set to undershoot its housing targets. And here’s the kicker: even if targets were met, it would only take housing per person levels back to 2021 – you’d need to build at this rate for 10 years (and more) to shift the dial on housing per person. So, as well as building more in the long run, and uprating LHA regularly, there should be more help for aspiring first-time buyers. We’ve proposed a Starter Deposit scheme providing a 5 per cent Government-backed loan on an entry-level home. Burnham Earn ‘em There’s more to living standards than costs – pay matters too. More bad news here I’m afraid. Private sector real wages have now been falling since October. At the same time public sector workers have enjoyed real growth – a gap rarely seen outside a recession. Not only that, but we may soon dip into negative real earnings growth for the entire labour market. That would be the fifth period of negative wages since the Global Financial Crisis. Indeed, the petering out of earnings growth explains the entirety of the slowdown in living standards growth since the mid-2000s. The answer here is easier said than done: growth. You’ll need to be more radical on reforms to support growth. While pay packets are shrinking, the number of young people not in employment, education or training is rising. We need to invest in their futures. Bringing an end to the volatile fiscal ratchet that is the Triple Lock would allow you to triple spending on employment support for young people. Hey big spender. What did Keir Starmer’s Government do on the tax and spend front? Lots of the focus has been on welfare, but in reality, Starmer and Reeves taxed for the NHS and borrowed for defence. Our final chart models the flow of the new money raised and spent in policy announcements this Parliament, up to the Spring Forecast. The Chancellor has raised nearly £70bn in tax and spent 70 per cent of it on higher day-to-day departmental spending. That spending has gone towards mitigating real terms cuts for most and raising funding for the NHS, with £9 in every £10 of extra spending over the next three years going to the NHS. What about more public investment? Reeves already cranked that lever to the tune of £28 billion (largely funded by extra borrowing) – but with a much larger portion going to defence than was probably anticipated. There are other ways to increase investment, without raising tax or touching the fiscal rules though. Expanding the National Wealth Fund could unlock significant funds, with Financial Transactions also potentially offering a path to ramping up housebuilding. Any extra borrowing comes with big costs, and you will need to continue the painful path of consolidation your predecessor started. UK borrowing continues to be more expensive than in other G7 countries. Yields on 10-year gilts are still higher than the last time the OBR did a forecast and that, plus the war in Iran, means your headroom has most likely already been eroded. There are no wheezes out of this dark fiscal hole, only tough decisions. What now? But if that doesn’t give you the space you need, for example because defence needs paying for, better to make an early move than to hope something shows up. The really big trade-off you are going to face is between prioritising public services or typical family incomes. You need to decide now whether you can live within the departmental spending envelopes that have been set for the rest of the Parliament, or need to increase them. Putting up taxes further will be hard, especially if you’re focusing on living standards. So there is a strong case for living within those envelopes and focusing on making the tax system better not bigger. Good luck.
