Government support packages lift household incomes relative to no-support scenario

Government support measures announced since March 2022 raise real household disposable income (RHDI) per person by 4½ per cent in 2022-23 and 2½ per cent in 2023-24, compared with what would otherwise have occurred, the Office for Budget Responsibility (OBR) said in its November 2022 Economic and fiscal outlook¹. The support came mainly through the energy price guarantee and successive tranches of cost-of-living payments¹.

The OBR said living standards are still set for the largest fall on record. RHDI per person falls by 4.3 per cent in 2022-23, the largest since ONS records began in 1956-57, followed by the second largest fall in 2023-24 at 2.8 per cent¹. The cumulative fall of 7.1 per cent from 2021-22 to 2023-24 takes RHDI per person to its lowest since 2013-14¹. By 2027-28 it recovers its 2021-22 level but remains over 1 per cent below pre-pandemic levels¹.

The OBR said the two support packages together reduce the fall in RHDI per person in 2022-23 by half and lower the cumulative fall from 2021-22 to 2023-24 by around a quarter, to 7.1 per cent. It said the smaller proportional effect over the two years reflects support in 2023-24 being around half as large as in 2022-23¹.

Source: OBR, November 2022¹

The OBR also set out how the support interacts with other pressures. It said net taxes and benefits reduce RHDI growth in 2022-23 despite the cost-of-living payments, reflecting fiscal drag from frozen tax thresholds among other factors, and boost disposable incomes in 2023 thanks to another round of payments before reducing them from 2025 as temporary support is withdrawn and frozen thresholds draw more people into tax and more taxpayers into higher bands¹. It said higher interest rates have little net impact on aggregate RHDI because the stock of household deposits is roughly equal to the stock of debt, though it expects rate rises to feed through to payments faster than to receipts, reducing RHDI growth by around half a percentage point in 2023-24¹. The OBR cited median household net financial wealth of £8,400, with 28 per cent of dwellings mortgage owned and median household mortgage debt of around £100,000¹.

Why it matters for households

The figures describe the difference the support made, not the direction of living standards. Even with the energy price guarantee and the cost-of-living payments, RHDI per person still falls in both 2022-23 and 2023-24, and the OBR expects the cumulative fall over the two years to be the largest since its records began¹. The support is largest in 2022-23 and roughly halves in 2023-24, so the cushioning effect on incomes is smaller in the second year¹. The OBR notes that lower-income households spend more of their income on energy, so the proportionate hit from higher energy prices is greater for them¹. It also notes that the effect of higher interest rates is unevenly distributed: mortgage holders face higher payments while savers receive more interest income¹.

What happens next

The OBR's forecast covers 2022-23 to 2027-28. It expects RHDI per person to recover its 2021-22 level by 2027-28 while remaining over 1 per cent below pre-pandemic levels, and expects consumption to fall by 2.7 per cent from the second quarter of 2022 to the third quarter of 2023 before recovering in 2024 and 2025¹. The OBR said the saving ratio is expected to fall from a peak of 24 per cent in mid-2020 to a low of zero per cent in 2023, settling at around half a per cent from 2025¹. No further support measures beyond those described have been reported.