UK faces biggest fall in living standards on record leaving average household £500 a year worse off
Rishi Sunak is that rare thing - a popular chancellor. But in the next 12 months his popularity will sorely tested because the outlook is awful.
Real disposable income is the money households have left over to spend or save after tax is deducted and benefits added. Importantly, it is adjusted for inflation, which is currently running rampant.
Real Disposable income rose slightly last year but The Office for Budget Responsibility (OBR) predicts it is set to plunge by 2.2% - or £500 a household - over the next twelve months.
The OBR says the fall in living standards would have been 3% were it not for the tax cuts the chancellor announced on Wednesday and the help with energy bills that he announced last month.
The next year will be grim, principally, because prices are rising much faster than pay.
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But, interestingly, given the all the fanfare around today’s tax-cuts, the OBR calculates that around 1/3 of the hit to our living standards will be caused by the tax rises that the chancellor announced last year which and the changes to benefits which take effect next month.
The scale of the shock that is coming is enormous. We haven’t seen real household disposable income fall like this since the ONS began measuring it in 1956.
“A fall of 2.2% is more than we’ve seen in any financial year on record. It’s bigger than we saw in the previous oil shocks of the 1970s, it’s bigger than we’ve seen in previous recessions so it’s something that is really unprecedented in the UK,” says Richard Hughes, Chair of the Office for Budget Responsibility.
The UK is being hit by a wave of inflation that was triggered by the pandemic and has been amplified and extended by Russia’s invasion of Ukraine.
There is a lot of pain for a lot of people ahead, as Economics Editor Joel Hills explains
The best that can be said for it is the OBR hopes it will be temporary.
The chancellor has tried to cushion the blow and spread its impact but everyone is going to feel poorer overt the next year.
The Institute for Fiscal Studies calculates that someone on average earnings of £27,500 a year will be £360 a year worse off.
Someone working full time on the National Living Wage and on Universal Credit will see their spending fall by £520 in the next twelve months.
The prospects for those on the lowest incomes look really bleak.
The chancellor did announce an extra £500m for the Household Support Fund today but, as the IFS puts it: “that’s not very much.”
The money will reach those most in need but probably not on the scale they’ll need it.The UK faces the biggest fall in living standards on record, leaving the average household £500 a year worse off.