UK household income is likely to fall by £2,000 a year, says think tank | The cost of living crisis in the UK

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A leading research bank has warned that with British households only halfway through a two-year cost-of-living crisis, median incomes are likely to drop by more than £2,000.

According to the Resolution Foundation, the typical disposable income of working-age households is on track to decline by 3% in this fiscal year, and by 4% in the year to April 2024.

Only the incomes of the rich will rise, according to the think tank’s annual living standards forecast for 2023, while middle-income households will struggle to make ends meet after losing an average of £2,100.

The warning comes amid a series of strikes by workers to demand higher wages near the average inflation rate of 10.7%.

Teachers’ votes are expected to support the strike when polling results are announced in the next two weeks, adding more than 500,000 public sector workers to the number that includes nurses, civil servants and Border Force employees.

A scheduled meeting between the prime minister and unions today could bring a deal with the nurses a step closer, but union officials said it was unlikely to address the claims of most public sector workers on their way to enduring a significant drop in living standards.

The think tank said that while the headline inflation rate is likely to decline over the coming months in response to lower international gas and petrol prices, the cost of living will remain prohibitively high for many families.

Energy bills are expected to increase following ‘cutting in subsidies’, pushing the typical energy bill up from £2,000 in 2022-23 to £2,850 in 2023-24.

A decrease in the wholesale cost of gas is likely to reduce the cost to the Treasury of government energy subsidies to businesses and households, but long-term contracts covering the supply of gas to households are expected to keep retail prices higher for at least the rest of the year.

A freeze on income tax thresholds would also increase the middle-income household’s tax bills by around £700 from April, while higher mortgage costs would result in a 12% drop in real income over two years for the three million households forced to do so. Refinance their mortgages.

The estimated 7% decline in living standards over two years is worse than the post-financial crisis stress, which led to a 5% decline between 2009-2010 and 2011-2012.

When combined with a weak recovery from 2024 onwards, [it] Even by 2027-28, typical household incomes will remain below pre-pandemic levels, the report said.

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Low-income families are more likely to see their financial conditions and health deteriorate, said Lalitha Trey, a researcher at the foundation.

She praised the government for providing “targeted support to vulnerable families”.

Over the course of the two-year crisis, real incomes among the poorest quintile of households will decline by 4%, compared to 9% for households in the top 5-10% (the second highest income bracket) of earners.

However, the richest 5% in society will be better off after the sharp increases in interest rates that have already boosted returns on savings and investments.

“This means that they alone will see their typical incomes rise by 4% between 2021-22 and 2023-24,” the report said.

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