British households are on course for the deepest reduction in living standards in a century, with real household disposable incomes expected to fall by 10% this year and next.
The warning comes in a new report from the Resolution Foundation, which said real earnings are falling at their fastest rate since 1997, meaning that by the middle of next year real wage growth since 2003 will will remove
A 10% fall in disposable income will equate to £3,000 for a typical household, increasing the number of people in absolute poverty by three million to 14 million.
Meanwhile, relative child poverty is forecast to reach 33% by 2026-27, its highest level since the 1990s, according to the report, which is called In At The Deep End: The Living Standards Crisis Facing The New Prime Minister
Concerns about child poverty are echoed in a briefing note issued to the Scottish Parliament from Save The Children Scotland this week, which said urgent action is needed from Holyrood and Westminster to help the poorest families.
Fiona King, the charity’s policy manager, said: “We are all concerned about increases in the cost of living, but it does not affect us all equally.
“For many families we work with, there are no cost-cutting measures, there is simply nothing to cut.
“We cannot overstate the simple fact that the coming months will be catastrophic for families and especially children who will be cold and hungry this winter, if urgent action is not taken now.”
More support could “radically reduce” the problem households face
The Resolution Foundation’s report took into account the Bank of England’s latest forecasts and the £30bn of policy support announced since March.
Britain’s inflation rate hit a new 40-year high in July, the latest figure available, reaching 10.1% annually, up from 9.4% in June.
One of the main factors driving the increase is energy bills, which will rise by around 80% from October when the latest price cap comes into force.
Read more: Food prices in August rose at the fastest pace since 2008. Energy bills rose by millions as the price cap rose to £3,549. Explained: Everything you need to know about higher bills. the impact of the energy bill increases
The report said that extra support to help people pay their energy bills, through a social tariff, a universal bill reduction, a price cap or more targeted support, would cost tens of billions of pounds, but would “radically reduce” the problem faced by the lower and middle class. income households.
Keeping the previous chancellor’s promise to raise benefits next year in line with September’s rate of inflation is also “vital” to protect the poorest households, the report said, adding that it would improve even more if the October inflation figure was used.
“Frankly terrifying”
Lalitha Try, a researcher at the Resolution Foundation, said high inflation was likely to remain with us for much of next year, meaning the outlook for living standards was “frankly terrifying”.
“Typical households are set to see their real incomes fall by £3,000 over the next two years, the biggest squeeze in at least a century, while an extra three million people could fall into absolute poverty.
“No responsible government could accept this vision, so radical political action is needed to address it.
“We will need an energy support package worth tens of billions of pounds, along with benefits rising next year by October’s inflation rate.
“The new Prime Minister must also improve the UK’s long-term prospects, which can only be achieved with a new economic strategy that delivers higher productivity and strong growth.”
Other cost of living warnings on Thursday included:• Some 400,000 homes in England are not protected by the energy price cap and need urgent help, according to the National Housing Federation• High fuel costs, rising poverty and government inaction could lead to a “major humanitarian crisis with the development of millions of children affected”, according to UCL’s Institute for Health Equity. • Hospitals are bracing for massive increases in energy costs, according to the BMJ, which says Leeds Teaching Hospitals NHS expects to pay an extra £2m. a month from next year, Nottingham University Hospitals NHS budget for a 214% rise and London’s Great Ormond Street Hospital expecting costs to almost double