Budget 2021: UK living standards to be hit as disposable income set to fall

Real household disposable incomes are set to fall this year and stagnate over the next four years, in one of the worst periods for UK living standards on record, it has been revealed.

Living standards are on course to grow by just 0.3% a year over this parliament – the worst in history outside the short 2015-17 parliament that was marked by the post-Brexit referendum inflation spike.

According to the Resolution Foundation, the poorest British households will be among the worst affected, facing a 7% drop in income in the second half of 2021-22 due to the removal of the £20 a week universal credit uplift after September.

This will take the basic level of benefits back to levels not seen since the early 1990s, potentially widening inequality for around half a million people, the think tank warned. It will also come when unemployment is set to peak.

Its overnight analysis of Budget 2021 also showed that while GDP is set to grow by 4% this year – the fastest growth since the late 1980s - average wages are set to remain 4.3%, or £1,200 a year.

This falls below their pre-crisis path by the middle of the decade, even as the UK economy recovers from the COVID-19 pandemic.

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Further planned cuts to public services spending will see budgets for unprotected departments (such as transport and local government) fall by £2.6bn next year, it said.

By 2024-25, day to day public service spending per capita in unprotected departments will still be almost one-quarter lower than in 2009-10, with less than a fifth of the reduction in spending between 2009-10 and 2018-19 having been unwound.

On Wednesday, chancellor Rishi Sunak promised to do "whatever it takes" to protect the UK economy as he delivered his second budget as chancellor.

He announced £65bn of additional COVID-19 support for the economy, taking total government spending since the crisis began to over £350bn.

He unveiled what he called the "biggest business tax cut in modern British history" — worth £25bn — to encourage companies to invest as economic recovery begins.

However, he was frank that tax rises will be needed to help repair the UK's public finances. He announced a looming increase in corporation tax for businesses and said the income tax allowance would be frozen.

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“The chancellor has delivered a big budget, but whether it’s on tax or spend, there are many more big questions still to answer before the UK fully emerges from its worst downturn in 300 years,” said Torsten Bell, chief executive of the Resolution Foundation.

“The chancellor has gone big on both support for the recovery now and tax rises in future. This is broadly the right approach to take in terms of protecting the economy now, securing a recovery next, and repairing the public finances later.

“But the details of his plans leave serious questions to be answered about whether enough has been done to support households in the recovery to come, how credible it is that further reductions in planned spending can be delivered, and if the UK’s public finances have really been put on a sustainable footing long term.”

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