The outlook for living standards for middle-income earners is “weak” beyond this financial year, according to an annual report by a thinktank released ahead of the Labour government’s first budget.
The Resolution Foundation warned that a slowdown in pay growth across the board would start to bite by the time of Sir Keir Starmer’s first anniversary in office, arguing that the pace of salary increases would soon be overtaken by rising housing costs.
Its findings, released just weeks after Labour’s landslide election win, were based on forecasts by both the Bank of England and Office for Budget Responsibility.
It said that the impact would be felt most by the worse off – especially if the Treasury decides not to U-turn on planned Conservative cuts to benefits – as a greater proportion of their incomes is spent on things like rents and energy.
The foundation said that 400,000 more children risked coming under the poverty line over the parliament without intervention as the cost of living crisis pivots, in part due to interest rates remaining high to combat inflation.
A reason why rates are not coming down at a faster pace is due to wage growth being seen as an inflationary risk.
The Bank wants salary increases to ease while, ideally, the government does not because it exposes more people to financial difficulty.
It marks a worrisome challenge for the Labour administration because it comes at a time when it claims to have inherited a £22bn “black hole” in the public finances from the Conservatives.
The government blamed this void for its early decision to scrap winter fuel payments for the 10 million…
