Five more years of austerity ahead, warns Resolution Foundation think tank


Britons are facing five more years of squeezed living standards owing to higher unemployment and weaker pay growth caused by the coronavirus crisis.

Average pay will be £1,200-a-year lower in 2025 compared with forecasts made before the pandemic, according to analysis of the latest Office for Budget Responsibility forecasts by the Resolution Foundation think tank. Average pay is about £30,000.

Wages had only just recovered from a decade of stagnation after the 2008 financial crisis before this year’s outbreak. The pandemic means that household incomes will have grown only 10 per cent in the 15 years since 2008, compared with 40 per cent in the previous 15 years.

Torsten Bell, chief executive of the Resolution Foundation, said: “The Covid crisis is causing immense damage to the public finances, and permanent damage to family finances too, with pay packets on track to be £1,200 a year lower than pre-pandemic expectations. The pandemic is just the latest of three ‘once-in-a-lifetime’ economic shocks the UK experienced in a little over a decade, following the financial crisis and Brexit. The result is an unprecedented 15-year living standards squeeze.”

While protecting jobs, the spending review did little to protect wages. Millions of public sector workers are now facing a pay squeeze and the chancellor did not extend the temporary uplift in universal credit beyond April, potentially leaving six million households £1,000 poorer “just when unemployment is at its highest”, the Resolution Foundation said.

The chancellor increased his Covid-19 spending yesterday to £280 billion this year and set aside another £55 billion for 2021. Borrowing will reach £394 billion this year, more than twice as high as the peak deficit during the financial crisis in 2009-10.

At the very least, the chancellor will have to find £27 billion of savings by the end of the parliament to match day-to-day spending with tax revenues. The extra borrowing will also allow public investment in infrastructure to rise to 2.9 per cent of GDP over the next five years, the highest sustained level of project spending since the 1970s.

Priority Whitehall departments such as health will have spending increases next year but Brexit-affected departments, such as HM Revenue & Customs, which is responsible for borders, and Defra, the department in charge of farming, have also seen big rises as they prepare for change after the transition period ends in January.

Unprotected departments are facing a continuing squeeze. “It will not feel like the end of austerity for many public services,” Resolution said.