Most Britons will not see their wages rise before 2015 election

 

Political Editor

Household incomes will not increase until after next year’s general election and will then rise “painfully slowly,” according to new research.

The Resolution Foundation think tank predicts that disposable income for a typical household will be “modest” and “barely positive” in the 2015-16 financial year and less than one per cent annually in the following three years. As a result, the household’s living standards will still be 3.5 per cent lower in 2018-19 than they were before the 2008 financial crisis, and only just inching above the level they last stood at in 2005-06.

According to the foundation: “The last five years have almost certainly left a large permanent scar on wages in Britain. Many working households will be running up a down escalator in the recovery.”

The most detailed study of future income trends finds that if income growth had continued at the same rate as before the crisis, median disposable income would have been £30,300 in the 2018-19 financial year, a third more than the £22,900 now predicted.

Tuesday's report poses big questions for both the Conservatives and Labour. It suggests that David Cameron and George Osborne cannot rely on a “feelgood factor” taking hold before the May 2015 election, even if people feel more optimistic about the economy generally.

While Labour will argue that Ed Miliband’s campaign on the “cost of living crisis” is still valid, the end of the era of stagnant incomes is finally coming to a close. That may force Labour to refine its message.

Polling for the foundation by YouGov found that 39 per cent of people say that “a recovery in living standards” requires their incomes to start rising again after recent falls. The foundation says this is likely to be achieved by next year.

But a bigger proportion, 46 per cent, think that a recovery means incomes being restored to their pre-crisis level, which the foundation says will take much longer.

The foundation, which specialises in low and middle earners, warns that the weak income growth it expects could be an obstacle to a sustainable recovery. People may have to dip into their savings to keep a consumption-led recovery going.

Gavin Kelly, the foundation’s chief executive, said: “Our evidence suggests that the fall in living standards is bottoming out and should start to rise again next year. That’s the good news and, given year after year of decline, it will come as a relief. But the hit to our living standards will take many years to repair. Our goal must be a widely shared recovery that sees the living standards of low to middle income Britain making up some of the lost ground of recent years as their income rise in line with overall economic growth. That still feels some way off.”

James Plunkett, director of policy at the foundation, said: “As things stand, the recovery rests on consumer spending. And that spending rests on a diminishing savings rate, not income growth. With so many households already struggling with their debts – even with [interest] rates still low – a savings-led recovery is not a happy prospect.”

Last month Downing Street issued figures suggesting that take-home pay has already started to rise. But experts questioned the statistics, saying that disposable household income is a better guide because it takes account of benefits and tax credits.

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