IFS: Workers face two 'lost decades' without earnings growth

  • Video report by ITV News Political Correspondent Carl Dinnen

Workers are facing two "lost decades" without earnings growth, the Institute for Fiscal Studies (IFS) has warned.

The respected economic thinktank said by 2021 average earnings look set to be nearly £1,400 lower than forecast in March 2016.

This would be lower in real terms than at the time of the 2008 financial crash.

It also predicted Britain's national debt may not return to pre-financial crisis levels until "well past the 2060s", based on projections released to coincide with Wednesday's Budget.

Its bleak assessment follows the Office for Budget Responsibility (OBR) forecast downgrading the UK's growth prediction for the next five years.

Despite a £25 billion giveaway, the Chancellor's Budget did not mark the end of the "age of austerity," the IFS said.

IFS director Paul Johnson said the OBR's "grim" official forecasts imply that GDP per head will be 3.5% lower in 2021 than was forecast less than two years ago.

He added that this equates to a £65 billion hit to the economy.

"We are in danger of losing not just one but getting on for two decades of earnings growth," said Mr Johnson.

Philip Hammond has pledged an extra £2.8 billion for the NHS in England over the next two years but the IFS said the investment is "modest".

"The planned increases in health spending were "modest in the context of easily the tightest decade for the NHS since its founding", Mr Johnson said

The IFS also said the cash injection into the NHS, housing and infrastructure investment would peak at £9 billion in 2019/20.

But it cautioned that it would "dissipate very quickly thereafter, magically becoming a takeaway by 2022/23".

The thinktank also pointed out that public services outside the NHS still face 7% cuts in day-to-day spending over the next five years.

Non-NHS public sector workers "should not be holding their breath in anticipation of an inflation-busting - or perhaps even 1%-busting - pay rise."

"Most areas of public spending still have difficult years ahead," Mr Johnson said.

The IFS also backed the OBR's assessment that the abolition of stamp duty for first-time buyers on properties up to £300,000 is likely to result in a rise in house prices.

The OBR predicted the move would push up prices by around 0.3% but the IFS said this did not mean buyers would be worse off as a result and in general they are better off.

The Chancellor has dismissed concerns scrapping stamp duty for first-time buyers will impact house prices.

Mr Hammond told ITV News the OBR predictions did not take into account other measures announced in his Budget.

"What the OBR did was look at the effect of the stamp duty reduction alone and it forecast that if nothing else happened, that would cause house prices to rise by a minuscule 0.3%."

He also pointed to the Government's pledge to build 300,000 new homes a year on average by the mid-2020s.

Stamp duty will be abolished on first-time buyer purchases up to £300,000 Credit: PA

The prime minister has also defended the Government's move to abolish stamp duty for first-time buyers, saying she wants to "reignite the dream of home ownership".

But Labour's shadow chancellor John McDonnell said: “We’re in danger now of a policy being introduced on stamp duty which will actually increase prices and everyone will lose out as a result of that."

Party leader Jeremy Corbyn said at a rally on Thursday that although the Tories "said a great deal about housing" in the Budget, there had been no commitment to tackling homelessness or building more social housing.

Jeremy Corbyn speaking to supporters. Credit: PA

Mr Corbyn said: "There's no greater issue than housing.

"The Tories said a great deal about about housing in the Budget, but there were two things missing.

"One was a real commitment to build the council housing that we need all across this country, giving everyone who needs one somewhere secure and safe with a lifetime tenancy.

"There was no commitment to the regulation of the private rented sector and in the face of the scandal of so many people rough sleeping in this country, the Chancellor offered three pilot schemes across the whole country to look at the issues of rough sleeping and homelessness.

"The issues are not complicated, people don't sleep rough because they prefer to sleep out on a November night. They sleep out because they are totally desperate.

"Is it morally just in the 21st century, in the fifth richest country in the world that we can't do a bit better than three pilot projects?"

Responding to the IFS analysis, a Government spokesman said: "The Budget set out the next steps in our plan to build an economy that is fit for the future, deliver the homes our country needs and support families and businesses.

"The only way to improve living standards in the long term is to improve our productivity, which is why we are investing £30 billion across the country in new infrastructure and skills, and delivering an ambitious Industrial Strategy."

The Chancellor's Budget does not mark the end of the 'age of austerity', the IFS said. Credit: PA