Biggest squeeze in living standards for a century as millions more face absolute poverty, think tank warns
Britain faces the “terrifying” prospect of the biggest squeeze in living standards for a century, a new report has warned.
An “unprecedented two-decade-long wage depression” looms as roaring inflation will wipe out years of anaemic wage growth by the middle of next year, the Resolution Foundation think tank predicts.
Meanwhile, three million more Britons could be thrust into absolute poverty without further government intervention to combat rocketing living costs.
The dire prediction came as Liz Truss, who is expected to become prime minister next week, said that direct support for families would be only her third priority in responding to the energy price crisis, after tax cuts and action to boost security of supply.
Ms Truss tied her hands on funding for any support bailout for families and companies hit by soaring inflation by pledging “no new taxes” if she succeeds Boris Johnson as expected on Monday.
And she ruled out a windfall tax on gas and oil giants or French-style energy rationing this winter.
The leadership frontrunner insisted she would “absolutely” offer support to businesses hit by massive hikes in energy bills, and said her chancellor – expected to be Kwasi Kwarteng – will “address the issue of household support” in an emergency budget soon after her arrival at No 10.
She later told The Sun she would provide “immediate support to ensure people are not facing unaffordable fuel bills” and be “robust in my approach”.
But she refused to discuss details of her plans, brushing aside reports that she would slash VAT from 20 to 15 per cent as she told the final hustings of the leadership campaign in Wembley: “I’m not ruling things in or out. I’m not sitting here writing a future budget or fiscal event.”
By contrast, her leadership rival Rishi Sunak made clear he was ready to hit companies with a further windfall tax, after imposing a £5bn levy on excess profits in May.
He told the hustings: “I introduced the windfall tax as chancellor and I’m glad I did because it was the right thing to do.
“I don’t actually know if Liz supports or doesn’t support it, but I think it is absolutely the right thing at a time when energy companies are making billions of pounds of profits because of war.
“That’s not right and we should exceptionally tax those and help with people’s bills.”
The Resolution Foundation report factors in £30bn of support announced by Mr Sunak when he was chancellor earlier this year, but still finds that a deep hit to living standards will last until 2024, in the run-up to the next general election.
“Typical households are on course to see their real incomes fall by £3,000 over the next two years – the biggest squeeze in at least a century – while three million extra people could fall into absolute poverty,” said Lalitha Try, a researcher at the Resolution Foundation.
She added that “radical policy action” is required to tackle the problem.
It comes as leading politicians across the political spectrum have called for greater support for households and businesses in order to combat the sharp uptick in energy prices.
The stark figures on living standards are set against a Bank of England forecast for a prolonged recession starting this year and City predictions for inflation to soar as high as 18 per cent from January to April.
If no action is taken by the new No 10 incumbent, typical household incomes are set to fall by 5 per cent this financial year, and 6 per cent the next, the Resolution Foundation said.
