Britain faces an “unprecedented” two decades of lost wage growth for millions of households, economic experts warned today in a bombshell report.
The Institute for Fiscal Studies stressed that official forecasts showed average wages would be £730 lower in 2022/23 than in 2007/08 once inflation is taken into account.
With further gloom ahead, IFS director Paul Johnson said: “We are in danger of losing not just one but getting on for two decades of earnings growth.
“If these forecasts are right, it’s very grim for living standards. It’s unprecedented.”
Average wages were £24,470 in 2007/08 in today’s prices once inflation is included, added Mr Johnson, but after the rollercoaster since then they are forecast to be £23,640 in 2022/23.
In a gloom-laden analysis of the Budget, the think tank also:
Dashed hopes that the years of austerity will be over soon, highlighting that in fact Chancellor Philip Hammond had added another year of cuts;
Warned that £3 billion allocated for Brexit preparations was “very small” compared with the forecast by the Office for Budget Responsibility (OBR) of the economic blow caused by the UK quitting the European Union;
Stressed that if forecasts are right, it would be hard for the Chancellor to get rid of the deficit before 2030.
Mr Hammond yesterday slashed a half-point off GDP growth on average from each of the next five years as the legacy of the financial crisis continues to shackle the country, with productivity improvements still only limping forward.
The IFS said the forecast from the independent OBR suggests GDP per person will be 3.5 per cent smaller in 2021 than was predicted in March 2016 — a loss of £65 billion to the economy.
Borrowing is forecast to be £12 billion higher in 2021/22 than was forecast in March, it added.
Mr Johnson said: “This is not the end of austerity. Not by a long chalk. As the years go by the end of austerity keeps slipping out of view. There are still nearly £12 billion of welfare cuts to work through the system, while day-to-day public service spending is still due to be 3.6 per cent lower in 2022/23 than it is today.”
The Resolution Foundation, another think tank, emphasised the economy is on course to be £42 billion smaller in 2022, compared to the March 2017 forecast, and that productivity growth would be the lowest since 1812 when Napoleon was marching on Moscow.
It also said real household incomes were set to fall for 19 successive quarters, or almost five years, between 2015 to 2020 — making it the longest squeeze in disposable income for 60 years.
It sounded the alarm over the “troubling outlook” for the living standards of millions of families. Director Torsten Bell said: “Families are now projected to be in the early stages of the longest period of continuous falls in disposable incomes in over 60 years — longer even than that following the financial crisis.”
The foundation said the squeeze on incomes would be longer, though not as severe, as the one after the 2008 financial crash.
It added that Mr Hammond could have used the money he spent on scrapping stamp duty for first-time buyers to purchase a house outright for each of the extra homebuyers his policy would generate.
“At £160,000 per extra home owner, the Chancellor could have simply bought people typically priced properties in over a quarter of local authorities,” said the foundation’s report, called Freshly Squeezed.
Mr Hammond insisted the UK economy was “fundamentally strong” and defended the stamp duty cut, which ministers insist will benefit around a million people.
He also defended the slower pace of deficit reduction, saying: “Of course we could get the deficit down more quickly, but that would mean cutting public spending, it would mean squeezing the economy harder, it would mean putting up taxes.
“We have taken the judgment that it is better to take a little bit longer to get the deficit down and ease up on families a little bit.”
The IFS warned public sector workers not to “hold their breath” in the hope of better pay as the Chancellor had not put any cash aside for rises.
It warned “older richer” people might gobble up the 300,000 homes a year promised by Mr Hammond.