Living standards to fall for many after decade of austerity knocks 40% off wages

No ‘feelgood factor’ for voters as Rishi Sunak splashes Budget cash

Living standards for many Britons will continue to fall following Rishi Sunak’s Budget, after a decade of austerity which has seen average wages grow by 40 per cent less than expected before the financial crash, a respected economic thinktank has found.

The Institute for Fiscal Studies said that the chancellor had used Wednesday’s statement to reverse many of the cuts in public spending imposed by successive Conservative-led administrations since 2010, in a package which owed more to Gordon Brown than George Osborne.

But IFS director Paul Johnson said there will be little in the way of “feelgood factor” for voters, with middle-income households set to see a fall in their disposable income and living standards for others barely rising at all.

Meanwhile, the childless unemployed - who have lost their £20-a-week Universal Credit uplift payments but do not benefit from Mr Sunak’s £2bn handout for claimants in low-paid work - are left in a “precarious” situation, with half a century of static benefits leaving their living standards “dramatically trailing those of the working majority”.

Despite the chancellor’s claims, Mr Johnson said that the decision to raise taxes to a record sustained level and to increase the size of the state to a scale last seen in the early 1980s was “almost entirely unrelated” to the costs of the Covid pandemic.

And he said that Brexit was more to blame than coronavirus for the high inflation, rising taxes and poor growth which will hit living standards over the coming years.

Instead, Mr Sunak was responding to the ever-growing demands of the NHS and to the “increasingly dire plight” of other public services like justice, social care and prisons, which had been “starved of funding for a decade”.

The “staggering” scale of the impact of austerity policies since the 2008 financial crash was starkly exposed in the IFS calculation that “average gross earnings could have been some 40 per cent higher had pre-crisis trends continued”.

The massive hit to wages was the result of government policy over the past decade which prioritised the value of assets like stocks, shares and property over income from work, the thinktank said.

And it warned: “The primacy of asset accumulation, and the importance of asset holdings, over the possibility of getting better-off through earnings, is being maintained well into a second decade.”

Mr Johnson said that 2021 would go down in history as a key moment for tax-and-spend policies, when a Conservative chancellor raised taxes by £40bn, putting it on a path to a record 36 per cent of GDP, and when public spending was returned to the levels inherited by Margaret Thatcher when she came to power in 1979.

Mr Sunak has set aside enough cash to afford a £7bn pre-election tax giveaway, said Mr Johnson.

But this was not a “huge or comfortable” fiscal cushion and will be vulnerable to unforeseen hits to borrowing or debt which could swallow up his election war-chest.

“The worry for the government is that, for all the chancellor’s upbeat delivery, the voters may not get much feelgood factor,” said the IFS boss.

“High inflation, rising taxes, and poor growth, still undermined more by Brexit than by the pandemic, will see real living standards barely rising and, for many, falling over the next year.”