Household income growth over the course of this parliament will likely be less than half what it was under the previous Labour government, new forecasts from the Resolution Foundation suggest.
Annual income growth over the next parliament will average just 0.8 per cent, or £1,400 per household, compared to the 2.1 per cent income growth recorded when Labour were last in power.
The tepid improvement in living standards will also be heavily weighted towards the start of the parliament.
Median household incomes will grow by a healthy three per cent this year thanks to strong pay growth and lower inflation, but the think tank warned this will “quickly come to a halt”.
Between 2024-2025 and 2028-29, the Resolution Foundation expects income growth to average just 0.4 per cent as unemployment rises and housing costs outweigh increasingly slow pay rises.
The outlook for poorer families is even worse with the number of children living in relative poverty set to rise by 400,000 to hit 4.6m. This increase is largely due to the continued roll-out of the two-child limit as well as the freezing of the Local Housing Allowance.
The “bleak” outlook comes off the back of a parliament in which living standards fell by around three per cent, the worst performance since the 1950s.
“This troubling outlook highlights the need for the new government to beat the forecasts that they have inherited,” Alex Clegg, economist at the Resolution Foundation said.
But the forecasts take no account of the potential impact of Labour’s “growth-boosting aspiration“. Keir Starmer confirmed yesterday that “growth – and, frankly by that I do mean wealth creation – is the number one priority of this Labour government”.
Increasing growth could have a big impact on living standards if it comes through a stronger productivity growth.
Productivity, which measures output per hour, is the main determinant of real wage growth in the long run. Without increases in productivity, wages cannot rise sustainably without causing inflation.
However, since the financial crisis productivity growth has slowed dramatically contributing to the relative stagnation in living standards many households have experienced.
The think tank forecast that if real annual wage growth was one percentage point higher from 2025-26 onwards, then typical income growth would rise eight per cent across the parliament.
“The transformative impact of higher earnings growth highlights the need to deliver stronger productivity-based economic growth,” the Resolution Foundation said.