We now know in early 2013, that the squeeze on living standards in the UK will be longer and deeper than projected this time last year. Average wages are not expected to rise in real terms until late 2014, after a period of stagnation and decline.
Despite stronger than expected job growth in the private sector and currently improving employment figures, many people continue to work fewer hours than they would like, putting downward pressure on their household incomes.
This bleak outlook is in the latest annual report of the Resolution Foundation, an independent think tank that aims to improve the lives of households on low to middle incomes. The report analysis, based primarily on the latest large scale data from 2010-11, sets out the economic position of the group, traces the origins of today’s squeeze on living standards and charts the long road to recovery for ordinary working households.
The report suggests that the incremental impact of changes to the up-rating of benefits and tax credits will become visible over time in poverty statistics, and with further reductions in public spending anticipated in this year’s spending review, there will be profound challenges for services, as well as deeper cuts to welfare spending.
To some extent, all families have been affected since the recession. Data shows that the very wealthiest have pulled away from all other income households over the longer term. But in 2010-11, real incomes fell right across the board and while tax and benefit changes in general hit poorer working-age households harder than richer households, particularly those with children, it is the very richest that have seen the biggest falls of all since 2010. As a result, the latest year saw the biggest decline in income inequality in the last 50 years.
Whether this pattern will be replicated in future years remains to be seen. Of course, households in work but on below middle income, especially those with children, start with far less than the better off, making any squeeze particularly hard to cope with. With wages falling and tax credits no longer providing the support they did in the 2000′s, these households, with an average income of only £21,000 after tax, face a daily struggle to keep up with the rising costs of essentials. Meanwhile, longer term goals such as saving or buying a home are drifting further from reach.
The causes of the economic challenges facing households are complex and entrenched. The report states that it is inaccurate and unhelpful to imply that the current squeeze on households is all down to ‘austerity’. The origins stretch back before the recession and cannot be attributed to a single period of government. The challenge is structural and in the five years prior to the financial crisis of 2008, all but the richest 10% of households failed to benefit adequately from economic growth.
Looking forward, we have a long way to go simply to get back to where we were before the downturn, to bring living standards back to their level in the mid-2000′s. Above all, the challenge, as we inch towards a long awaited recovery, is how to ensure that the benefits of any future growth are more fairly shared.