Wage growth for this decade could be at its lowest since the 1900s. Many Britons could face a significant drop in living standards as they struggle to keep up with rising living costs.
In his recent Autumn Statement, the Chancellor Philip Hammond’s Autumn statement revealed the UK faces a £122 billion black hole. The Resolution Foundation followed with a report suggesting the squeeze on living standards between now and 2020, could be far worse than those imposed by austerity measures introduced between 2010 and 2015.
The report suggests that a combination of lower earnings and higher inflation could see incomes growing at less than half the rate as the years following the recession.
Gloomy economic forecasts
The Office for Budget Responsibility (OBR) has forecast average earnings in 2020 will be £830 lower than previously predicted. In fact, 2010-2020 could be the weakest decade for wage growth since the 1900s.
Real weekly earnings are now forecast to grow by only 1.6% over the decade. Comparisons with the past make grim reading. In the 2000s, despite the recession, the figure was 12.7%. With the exception of the 1920s, every other decade saw a 20% rise in weekly earnings.
If this forecast is correct, it may be more of a ‘vice-like grip’ than a ‘squeeze’ on living standards.
Infrastructure and innovation a priority
This year’s Autumn Statement, saw the Chancellor relax the government’s own spending rules. However, this was not in the shape of a reversal of the freeze or cuts to benefits. Instead, investment is earmarked for infrastructure, skills and innovation.
It may not be a surprise to see Philip Hammond selecting UK productivity as a real priority. Economic experts often point to the direct link between investment in infrastructure and skills and economic growth.
Weak productivity growth was a major concern for the UK economy long before the EU referendum. But there are concerns that if the continued uncertainty following the Brexit vote causes private sector investment to drop, then the government’s increased spending pledges could be all but wiped out.
Where all leaves the government with its pledge to support those ‘just about managing’ or ‘Jams’, could become an even greater challenge for the chancellor. There are echoes between the Treasury’s own distributional analysis of the potential impact of the Autumn Statement and the findings of The Resolution Foundation’s report. Both suggest the bottom 30% of earners likely to see their incomes fall.
Chancellor Philip Hammond has frequently talked of the need for caution. But, he has also warned of the inevitable financial rollercoaster ahead as we leave the EU.
The true enormity of the challenge he faces in the coming years in ensuring that the economy ‘works for everyone’ and does as much for those ‘just about managing’ as the privileged few, seems to be getting clearer, and starker, all the time.