Liz Truss or Rishi Sunak are set to oversee the steepest fall in living standards in a century after one of them enters Number 10 next Monday, a fresh report published today reveals.
Brits are on course to be £3,000 worse off by the end of 2024 as soaring energy bills and inflation eat into their finances, according to the economic think tank the Resolution Foundation (the Foundation).
Rampant price rises will outpace pay growth by some distance, delivering a 10 per cent blow to real household disposable income over the next two years, the report found.
Despite outgoing prime minister Boris Johnson promising to narrow income gaps between UK regions under his “levelling up” agenda, spending power is on course to plummet seven per cent by the end of the current parliament, making it “easily the worst parliament on record for income growth,” the Foundation said.
Weak economic growth driven by a productivity malaise since the mid-2000s has squeezed workers’ pay, leaving them with little room to cope with the current cost of living crisis.
Unless either Truss or Sunak launch a policy package that boosts growth, “the new prime minister risks overseeing the culmination of not just the worst two years in this century or the last, but the culmination of two lost decades for British households’ living standards,” the Foundation added.
Energy bills will jump 80 per cent in October, but the Foundation warned bills could remain high for the next 18 months, cancelling improvements in living standards. Some energy consultants have said annual bills could approach £8,000 next April.
All real pay growth since 2003 is set to be wiped out by 2024 without government intervention to cushion the energy crunch, the report found.
An emergency cost of living package that offers low-to-middle income households 30 per cent off their energy bills would prevent some of the historic drop in living standards, the Foundation said.
Liz Truss has argued cutting taxes is the best way to support households, while Rishi Sunak has backed a combination of lower taxes and cash transfers.
Inflation is currently running at a 40-year high of 10.1 per cent, but is on track to top 13 per cent. Economists at Goldman Sachs earlier this week said the cost of living will top 22 per cent if global gas prices stay high.
Annual UK CPI inflation
City A.M. has approached Truss and Sunak’s campaigns for comment.