MILLIONS of Brits are facing a fall in income of a £1,000, experts have warned.
Households are facing rising bills and a higher cost of living which will squeeze incomes over the next year.
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It could be the sharpest fall in real incomes – which takes into account rising costs – since the 1970s, according to the Resolution Foundation.
Real household incomes across Britain could fall by 4% for working age people in the financial year 2022 to 2023, the think tank said.
That’s the equivalent fall of £1,000 per household for non-pensioners – a scale of decline which would normally be associated with recessions – according to the researchers.
The Government’s bill help of £350 through energy rebates for millions of households will help cushion some of the blow.
Millions of households in England will get a £150 council tax rebate this April.
A further £200 will be handed to billpayers to help wither energy costs in October, but will repaid over subsequent years.
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But the help comes as energy bills are set to rise by hundreds of pounds.
The price cap is increasing in April which will add £693 to the average dual fuel tariff for typical households.
Millions of Brits will also start paying more tax in April when National Insurance rates will rise and council tax bills.
However, the living wage and some benefits will rise in April too and could slightly soften the impact of other increases.
The living wage, which is paid to those age 23 and over, will rise from £8.91 to £9.50 an hour from April.
Many benefits like Universal Credit and State Pension will go up by 3.1%.
Inflation hit 5.5% this year and is predicted to hit around 8% this spring leaving households worse off in real terms.
Over the course of the year, this will mean a real-terms cut in the value of benefits of over £10 billion – more than the amount the Government spent on pandemic-related temporary benefit increases in 2020-21 – the Foundation said.
If inflation remains high it could drive a bigger increase in benefits next year however, the Foundation said.
The amount benefits are uprated each year is based on September’s rate of inflation.
It said that while benefit levels should end the “rollercoaster roughly where they began it in real terms”, this approach risks worsening the income shock to families this year.
The Foundation called for Chancellor Rishi Sunak to address the issue in his upcoming spring statement and increase benefits by 8.1% this year.
The increase could then be reduced next year, it said, avoiding an income shock this year.
Bleak outlook for living standards
The outlook for living standards this coming financial year is “bleak” even before the Ukraine crisis, with soaring energy bills this April disproportionately affecting families on low and middle incomes.
The report said: “The crisis in Ukraine has increased both the scale of price rises but also the degree of uncertainty about their levels and duration.
“So far, the conflict has substantially increased the price of oil and natural gas.”
The report warned: “The UK’s post-Covid economic recovery is well under way, but a deep living standards downturn is just getting going.”
Inflation could peak at 8.3% this spring – or even exceed the 8.4% rate in April 1991 that was the highest since 1982 – the Foundation said.
Income are also expected to take a hit in further years, with economic growth in 2023 to 2024 is also expected to be weak, it said.
Without a considerable improvement in the outlook for productivity and wages, the typical household income in 2025 to 2026 could be lower than it was in 2021 to 2022, it added.
This suggests that during first half of the 2020s, the pandemic may actually have been “as good as it gets in terms of household incomes”, the Foundation said.
The outlook suggests there will be “no rapid rebound from the period of high inflation“, the report added.
Poverty levels and weak pay growth are issues that also need to be addressed, the Foundation said.
It warned that the proportion of children living in absolute poverty could need up higher in 2026 and 2027 than it was at the start of the decade.
Adam Corlett, principal economist at the Resolution Foundation, said: “Britain has stepped out of a global pandemic and straight into a cost of living crisis.
“The tragic conflict in Ukraine is likely to further drive up the price of energy and other goods, and worsen the squeeze on incomes that families across Britain are facing.
“Inflation may even exceed the peak seen during the early 1990s, and household incomes are set for falls not seen outside of recessions.
“For millions of low and middle-income families, this inflation-driven squeeze will be made worse by a living standards rollercoaster.
A Government spokesperson said: “We recognise the pressures people are facing with the cost of living, which is why we’re providing support worth around £20 billion this financial year and next to help.
“This includes putting an average of £1,000 more per year into the pockets of working families via changes to Universal Credit, freezing fuel duties to keep costs down and helping households with their energy bills through our £9.1 billion Energy Bills Rebate.
“We have also boosted the minimum wage by more than £1,000 a year for full-time workers and our £500 million Household Support Fund is helping the most vulnerable with essential costs.”
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