Britain set to experience the second worst parliament for income growth since records began

Real household disposable income (RHDI) is set to grow by just 1 per cent – or £220 – per person over the whole of the current parliament, which would make it the second worst parliament for living standards since records began in 1955, according to new Resolution Foundation analysis published today (Sunday).

The Foundation’s analysis of the Office for Budget Responsibility’s (OB) latest economic outlook and historic incomes data, highlights how long Covid economic scarring will take its toll on both the public and household finances. This will leave the Prime Minister with work to do if he wants to claim that people ‘are better off than they were five years ago’ at the next election.

The Foundation notes that the OBR has forecast RHDI per person to grow by 1 per cent – or £220 – between December 2019 and May 2024 – an annualised growth rate of just 0.2 per cent. This would be the second worst record of any parliament since records began in 1955.

Only the 2015-17 parliament, when incomes actually fell by 0.1 per cent a year, has a worse record on raising living standards. This income fall was caused by the sterling devaluation in the wake of the EU referendum, which caused inflation to rise and real pay packets to fall in 2017.

The Foundation notes that the 2005-10 parliament, marked forever by the financial crisis, saw incomes grow by 0.7 per cent a year on average, while the 2010-15 parliament saw incomes grow by 1.2 per cent a year.

The prolonged 15-year living standards squeeze that Britain has experienced in the wake of the financial crisis is a far cry from the income booms of the 1960s, 1970s and 1980s.

Incomes grew by 3.8 per cent a year in the 1964-66 and 1987-92 parliaments. Real household incomes grew by more during the 10 months of Harold Wilson’s 1974 parliament (2.2 per cent), than they are projected to over the full five years of Boris Johnson’s 2019-24 parliament (1 per cent).

The Foundation says that hopes of an imminent of vaccine roll-out and a return to normality in 2021 could – and should – see Britain experience a strong economic recovery next year, with the OBR expecting the economy to grow by 5.5 per cent next year.

However, with unemployment set to peak at 2.6 million in mid-2021 and remain elevated long after the pandemic is over, securing a stronger living standards over the course of the parliament will need to be a top priority for the Government.

The Foundation warns that the planned cut to Universal Credit and Tax Credits in April 2021, which would see around six million households lose over £1,000 a year (including one-in-three working age constituents in ‘Red Wall’ seats) would be the worst possible way to kick off a post-Covid economic recovery.

The Chancellor missed the chance to change this in his Spending Review, says the Foundation, but he should make the change soon to ease the fears of hard-press households fearful of where Britain’s economic emergency will go next.

Adam Corlett, Principal Economist at the Resolution Foundation, said:

“On Wednesday the Chancellor warned that the economic emergency was just beginning – and that’s true of both the public and household finances.

“Despite hopes of an imminent vaccine rollout and a recovery next year, the OBR has forecast household incomes to grow by a paltry £220 over the whole of the five-year parliament. This would make it the second worst parliament for rising living standards in over 60 years – with only the 2015-17 parliament faring worse.

“Improving the stark outlook for living standards should be a top priority for Government once the pandemic is over – especially if the Prime Minister wants to go into the next election claiming that people are better off than they were five years ago.

“The Chancellor can start right now by cancelling the planned cut to Universal Credit next April that would dash hopes of any recovery for millions of households.”