Incomes of middle and low earners set to flatline for another three years, study finds

Inequality to hit record highs as recovery favours wealthier people but poor miss out

Low earners will see their incomes increase by just £300 between 2010 and 2020 (Getty)

Incomes of low earners are set to stagnate for at least another three years, leading to record levels of inequality, a new study has found.

While household incomes for richer people will begin to rise next year, those on middle and low incomes will not see an increase until at least 2020, the Resolution Foundation think tank said.

It means income inequality is likely to rise for the first time since the 1980s and hit record highs during the early 2020s, having fallen in recent years. The Resolution Foundation said government benefit cuts were largely to blame.

The think tank’s annual living standards report found that high inflation in the wake of the Brexit vote means household incomes will fall in 2017-18, making this year the worst for income growth since 2011-12, and the third worst in the last 25 years.

While higher incomes will slowly begin to rise from next year, the Resolution Foundation said eight million low- and middle-income families will miss out and instead see their earnings flatline for a further three years.

It means families deemed to be “just about managing” will have seen their incomes rise by just £300 (2 per cent) between 2010 and 2020, compared to a £3,100 rise (10 per cent) for higher earners.

The Resolution Foundation said £14bn of welfare cuts has more than offset the benefits of policies designed to boost wages, such as the introduction of the National Living Wage.

Reversing some of these cuts, funded through higher income taxes, would prevent incomes falling for the poorest “by sharing growth more equally across the income distribution”, it said. Action to tackle rising private rents could also see incomes increase by more than a quarter.

Torsten Bell, director of the Resolution Foundation, said: “This Parliament risks seeing the first sustained rise in income inequality since the 1980s. But the story this time around is less about the rich soaring further away, and more about poorer families falling further behind as they bear the brunt of £14bn of welfare cuts.

“Lots of factors lie behind projections of a parliament of weak income growth, many of which are beyond the Government’s immediate control. But it is policy decisions, not capitalism, that look set to drive living standards of low- and middle-income families down and inequality up in the years ahead.

“Recent years of economic anxiety and political division should have taught us that this is the last thing Britain needs.”

John McDonnell, the Shadow Chancellor, said: “This report lifts the lid on the living standards crisis facing many working families in our country, and which Philip Hammond refuses to address.

“Some of the poorest in our communities have been forced to shoulder the burden of almost eight years of Tory economic failure, and they need an urgent change of direction from the Chancellor next month at the Spring Statement.

“The next Labour government will end austerity and introduce a £10 an hour real living wage to build a high wage, high skill economy for the many, not the few.”

It comes as a separate study found the public now sees more affordable housing as second only to investment in the NHS as a political priority.

Thirty-one per cent of people consider it one of their top three priorities – significantly more than say the same of reducing crime, cutting immigration or improving education, according to the Kantar Public Policy Index.