OBR forecasts largest fall in living standards since records began for 2022-23

The Office for Budget Responsibility (OBR) forecast that real household disposable income (RHDI) per person would fall by 2.2 per cent in 2022-23, describing it as the biggest fall in living standards in any single financial year since ONS records began in 1956-57¹. The forecast was published in the OBR's March 2022 Economic and fiscal outlook, in a box based on ONS data from March 2022¹.

The OBR said the fall would be only the ninth occasion since the 1950s that RHDI per person has fallen on a financial year basis, and the first time since 2016-17¹. It attributed the reduction to several sources: nominal earnings growth failing to keep pace with rising inflation, increases in global goods and energy prices that preceded the Russian invasion of Ukraine, and net changes in personal taxes and benefits¹. The OBR noted inflation had reached a 30-year high in January 2022, and said the rise in inflation to a 40-year high this year was expected to drive the fall¹.

The forecast came despite £17.6 billion of fiscal support for households announced in the Spring Statement, through the energy support package, fuel duty cut and NICs primary threshold measures¹. Without those measures, the OBR said RHDI per person would fall by around another 1 percentage point in 2022-23, meaning the Government had offset around a third of the fall that would otherwise have occurred¹.

On energy specifically, the OBR said the £350 rebate would offset just over half of the £694 in annual energy bills taking effect in April, and its forecast assumed a further rise in the price cap of around 40 per cent in October 2022¹. That would imply average annual energy bills around £1,100 higher between April 2022 and March 2023¹. The combined effect of the initial rebates and NICs cuts was sufficient to offset just under half of that rise, the OBR said, though total tax and benefit changes offset only about a third of the overall decline in real per-person disposable incomes¹.

The OBR said the fall meant RHDI per person would only sustainably return to its pre-pandemic level in 2024-25, two years later than forecast in October and four years after the start of the pandemic¹. It said real incomes had been stagnant since the start of 2019 and this was now expected to continue over the next few years, with the level of RHDI per person troughing in late 2022 before starting to recover in 2023 as energy prices fall and inflation eases¹. By 2026-27, cumulative growth in RHDI per person is 0.2 percentage points lower than in the October forecast¹. The OBR added a footnote that on a calendar-year basis, the fall in 2022 is the largest since 2011 rather than the largest on record¹.

Why it matters for households

The forecast covers the financial year from April 2022 to March 2023, so it describes a squeeze on household budgets already under way when it was published. A 2.2 per cent fall in real disposable income per person means the average household's spending power, after tax and benefits and adjusted for prices, is expected to be lower at the end of that year than at the start. The OBR's figures show the energy rebate and NICs changes reduce the fall but do not prevent it, and that the support offsets a smaller share of the overall income decline than of the energy bill rise alone. The OBR also projects that real incomes, stagnant since the start of 2019, will not durably regain their pre-pandemic level until 2024-25. For context on what different income levels cover, see the Minimum Income Standard, and for how pay has moved against prices over this period, see Have Real Wages Recovered Since the Cost of Living Crisis?.

What happens next

The OBR's forecast assumes a further rise in the energy price cap of around 40 per cent in October 2022¹. It expects the level of RHDI per person to trough in late 2022 and begin recovering in 2023 as energy prices fall and inflation eases¹. The OBR's next set of forecasts would follow in a subsequent Economic and fiscal outlook; the March 2022 document does not set out a date for that.