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The Actuary The magazine of the Institute & Faculty of Actuaries

UK experiencing worst decade of real pay growth for 210 years

Real average earnings are only set to return to the level they were before the financial crash by the end of 2022, according to a report from the Resolution Foundation.

This decade "worst for pay growth since the Napoleonic wars" ©iStock
This decade "worst for pay growth since the Napoleonic wars" ©iStock

This would mark an unprecedented 15 years of lost income growth, with an average of £12,000 likely to have been lost between 2010 and 2020 – the worst decade for real pay in 210 years.

Based on Office for Budget Responsibility (OBR) forecasts made yesterday, the think tank believes that a single person working full-time on the minimum wage (£13,150) will be £380 worse off by 2020.

Resolution Foundation director, Torsten Bell, said: “Britain is set for a return to falling real pay later this year, with this decade now set to be the worst for pay growth since the Napoleonic wars.

“Some households will feel the pinch more than others. The combination of weak pay growth and over £12bn of benefit cuts means that for the poorest third of households this parliament is actually set to be worse than the years following the financial crisis.

“The big picture from yesterday’s budget is that the big squeezes on both the public and family finances have been prolonged well into the 2020s.”

Real pay growth is calculated after taking into consideration the effects of inflation on purchasing power, which the OBR predicts to hit 2.4% this year, before falling to 2% in 2019.

Although it upgraded GDP from 1.4% to 2% for 2017, the Resolution Foundation analysis reveals that the UK is only set to eliminate its deficit in 2025 – five years later than the previous chancellor had hoped – to restore government finances to a surplus.

This comes despite the OBR making the biggest single revision to an in-year borrowing forecast since it was created in 2010, decreasing its prediction by £16.4bn for this year.

“The focus on good news this year has hidden the fact that the OBR has stuck to its pessimistic guns from the autumn statement about the fate of Brexit Britain’s economy,” Bell continued.

“The weak medium-term outlook for borrowing means we’re still only halfway through the fiscal consolidation that was supposed to have finished by now, and while the OBR at least delivered some good news on borrowing, the family finances picture has actually deteriorated since the autumn.

“Tackling the living standards squeeze facing low and middle income households should be a priority for future budgets.”

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