An Institute of Fiscal Studies (IFS) thinktank has warned UK workers that wages will be no higher in 2022 than they were in 2007 as weak pay growth over the past 10 years has been exacerbated by predicted welfare cuts. After the recent spring budget, the thinktank analysed the outlook for many and found that we are heading toward an unprecedented 15 years of lost earnings growth.
As we head into the third successive parliament of austerity, after a decade of lost earnings growth, households are due to be hit with big cuts to welfare. This is set to tighten the budget further for many, especially those classed as ‘just about managing’, who are usually in work but are relying on state benefits such as child tax credits to make up the shortfall to pay their essential household bills.
Director of the thinktank, Paul Johnson, pointed to the global financial crisis which hurt the UK economy and a decade on, income and earnings growth prospects remain weak. Speaking at the IFS’ post-budget day briefing, he said; “On current forecasts average earnings will be no higher in 2022 than they were in 2007. Fifteen years without a pay rise. I’m rather lost for superlatives. This is completely unprecedented,”
The Office for Budget Responsibility’s (OBR) latest outlook for the economy implied the financial crisis had seen the UK suffer permanent productivity losses. As a result of this, wages have also suffered as many businesses are likely to be struggling to meet wage bills due to lower output.
The OBR noted that this will be a third parliament of austerity due to the current state of the country’s borrowing. In 2020, the UK is set to borrow £20bn, around £30bn more than last year’s budget intended us to borrow. As a result, the government has a lot of work to do to cut spending if they want to get back on track with the planned budget.
The Resolution Foundation commented on the current state of pay and household finances recently by claiming that the UK is in the worst decade for pay growth since the Napoleonic wars of 1803-1815. This is backed up by findings which suggest that UK families will miss out on £12,000 of growth in pay by 2020, making it the worst decade for wages for 210 years.
Although pay packets themselves are not predicted to fall, the rise in inflation will exceed any wage growth to come this year so real take home pay will fall for many as the money in their pocket will not go as far.
Torsten Bell, director of the Resolution Foundation, spoke to the Guardian regarding these findings; “The combination of weak pay growth and over £12bn of benefit cuts means that for the poorest third of households this parliament is actually set to be worse than the years following the financial crisis.”
Director of economics at the Health Foundation, Anita Charlesworth, said that an extra 1% of GDP needs to be found to put towards austerity measures. However, with the current levels of tax, she is not sure exactly how this extra money will be found.
This is particularly worrying at a time when councils are shouldering the burden of austerity and will soon have their budgets cut to the bare minimum. As a result, most councils are focusing on funding adult and children’s social care and not much else.
From the cost of food to using essential services, many things we interact with or need on a daily basis are looking likely to become a lot more expensive over the coming months. With no planned increases in wages above the absolute minimum and cuts to the welfare system, 15 years without a pay rise will be difficult for many.