People in the UK will not see a return to a level of living standards anywhere near they enjoyed before the recession until at least 2018, the Office for Budget Responsibility has identified. In a study conducted by the OBS, it was revealed that the actual value of wages had decreased in the past 3 three years, with a forecast of 2018 given as the time when incomes will begin to reach their pre-recession levels.
Slow growth in wages at a rate less than that of inflation in the past four years has meant that workers have had less disposable income available to them over this period, and has caused some spectators to say that Britain is currently enduring a ‘cost of living crisis’.
This is a view shared by the Institute for Fiscal Studies (IFS), who have argued that whilst the worst income decreases are behind workers now, that they nevertheless had a long way to climb before their actual value reached anywhere near pre-recession levels.
The IFS also identified that those who currently receive a low annual salary are at the highest financial risk at the moment, with recent benefit cuts and consistent price rises in food, fuel and housing costs likely to make it even harder for them to sustain their essential payments moving forward in the future.
The IFS study report said: “Average living standards have fallen dramatically since the recession, as income growth has failed to keep pace with the rate of inflation. This fall in average incomes has largely been driven by declines in real earnings.”
Looking forward, however, the combination of recovering real earnings and further cuts to benefits and tax credits is likely to mean that nominal income growth will be lower towards the bottom of the distribution.
“Unless differences in inflation are reversed, this could mean that low-income households will see the largest falls in living standards over the period of recession and fiscal consolidation as a whole.”
Labour Treasury Spokes person Catherine McKinnell reiterated this sentiment, arguing that it is the country’s lowest earners who have been hit the hardest by the stagnant wage growth seen in the past five years.
“And on current forecasts real earnings are not expected to get back to the level they were in the final year of the last Labour government until 2018/19,” she said.
However, Chancellor of the Exchequer George Osborne said that the positive thing to take from the report was that wage drops had halted, and identified that the government was doing all it could in order to try and fix the financial difficulties the country is currently facing, due to Labour’s mis-management of the economy during their tenure in Downing Street.
He said: “Only by continuing to work through our long-term plan will we secure a better economic future for hard-working people”.
Whether the current administration is capable of doing this in the long term is yet to be seen, with their forward guidance policies and artificial propping up of the property market simply serving to build up the personal debt levels in the UK, which currently stand over £1 trillion.
However, what is for sure is that by the time of the General Election next year, living standards and personal finances will be not better, if not worse off than when the current administration came to power, and begs the question whether previous Labour remarks about the ‘broken link’ between economic growth and living standards may actually be true.