Report projects worst parliament on record for income growth

The Resolution Foundation published its fourth Living Standards Outlook on 8 March 2022, assessing household incomes and living standards to 2026-27. It projects that the period from 2019-20 to 2024-25 is on track to be the worst parliament on record for income growth, with a 2 per cent drop in the median, without assuming any impact from the situation in Ukraine¹.

The report says inflation stood at 5.5 per cent, its highest rate in 30 years, having been 0.7 per cent in January 2021, and was projected before Russia invaded Ukraine to hit 7.3 per cent in April 2022. It estimates the monthly peak will now exceed 8 per cent this spring and could rival the 8.4 per cent reached in 1991. It assumes prices in 2022-23 will on average be 7.6 per cent higher than in 2021-22, up from the Bank of England's February forecast of 6.2 per cent¹.

Energy is the main driver. The report says increases in the energy price cap mean a typical energy bill will go up by £693, or 54 per cent, in April 2022, after a £139 rise in October 2021, and that October 2022 could see a further rise of around 47 per cent, equivalent to around £900 a year for a typical household. It notes Brent crude has hit highs of over $110 a barrel and gas has exceeded £3.75 per therm¹.

On support, the report cites a £150 Council Tax rebate for those in Bands A to D, with Scotland and Wales introducing similar policies, and a £200 temporary rebate on all electricity bills in autumn 2022. It says this package means a £350 boost to most households' incomes in 2022-23, turning into a £40 drag from 2023-24 as the Energy Bills Rebate is clawed back over the following five years¹.

The report says the value of most benefits may fall by 4.2 per cent in real terms over 2022-23, equivalent to a one-off £10 billion cut to benefit spending, taking core support to its lowest real-terms level since 1983-84. It says this is set to be largely undone in April 2023, when benefits could rise by 7 per cent or more. It notes the £20 a week cut to benefits in October 2021 when temporary pandemic support ended, and a permanent Universal Credit boost for working families from December 2021¹.

On tax, it says National Insurance rates will rise, while higher inflation means the freeze in Income Tax thresholds will represent a bigger tax rise than originally planned. It says two rises in recent months took the Bank Rate to 0.5 per cent in February 2022¹.

Why it matters for households

The report describes falling real household incomes as the defining economic feature of 2022. It says real wages fell by 0.6 per cent in Q4 of 2021 and are set to fall by almost 4 per cent in the coming year on its inflation assumptions, with no year-on-year real earnings growth expected until summer 2024 even on the Bank of England's pre-Ukraine forecast. Unemployment was 4.1 per cent in Q4 of 2021, down from a peak of 5.2 per cent in Q4 of 2020¹.

It says poorer households spend over three times the proportion of their total expenditure on energy bills as richer households, and have less flexibility in their budgets and fewer savings. On housing, it says social rents in England can rise by up to 4.1 per cent in April 2022 and perhaps over 8 per cent in April 2023, with 44 per cent of social renters not receiving housing support. Local Housing Allowance is not increased in cash terms, and the benefit cap remains frozen¹.

The report also notes that the real value of most benefits in April 2023 should be broadly where it was in April 2021, but says that is of little comfort in the meantime to low and middle income households¹.

What happens next

The report's projections use Bank of England and Office for Budget Responsibility forecasts that pre-date the conflict in Ukraine. It notes that readers may be interested in its post Spring Statement income projections, which incorporate policies and OBR forecasts set out on 23 March 2022¹.