Voters face a year of stagnating living standards before the next election as stealth taxes and mortgage costs bite into household incomes, report warns
- Working age households are on course for a year of stagnating living standards
- But inflation is likely to have dipped below three per cent at the next election
Voters will not feel the benefit of economic recovery in time for the general election as stealth taxes and mortgage costs bite into their incomes, a report warns today.
Typical working age households are on course for 12 months of stagnating living standards ahead of a likely poll next year, the Resolution Foundation think-tank concluded.
In a glimmer of cheer for Rishi Sunak, the research projects that inflation is likely to have dipped below 3 per cent by the time of an election. With wage growth now accelerating, that should mean more spending power in consumers’ pockets.
But the impact of taxes and soaring interest rates will undermine any boost. And there was further unwelcome news for Chancellor Jeremy Hunt yesterday when the chairman of fiscal watchdog the Office for Budget Responsibility said the economy’s sharper than expected recovery from Covid did not give him more room for tax cuts.
Richard Hughes said the historical data did not change the amount of taxes collected or money spent by the Government and ‘doesn’t tell you as much as you might think about the outlook’.
Voters will not feel the benefit of economic recovery in time for the general election as stealth taxes and mortgage costs bite into their incomes. Chancellor Jeremy Hunt is pictured yesterday
It adds up to year in which disposable incomes – after taking account of inflation – see zero growth in 2024, having fallen by 4 per cent over the previous two years combined.
‘Since the 1960s, there is no example of a government retaining a majority with such weak income growth,’ the report said.
READ MORE: Britain’s stealth taxes hoover up £241 billion from working people as 6.5 million pay higher rates of income tax
With income tax thresholds frozen, it means millions are being dragged into higher tax bands even if pay rises are barely enough to cover the rise in the cost of living.
And the slow-burn impact of interest rate rises will stretch into next year. Millions of mortgage borrowers have already seen hundreds of pounds added to monthly repayments, and more face the same fate as fixed rate deals come to an end.
The report said half of the £17billion higher annual mortgage costs triggered by rising rates has yet to be passed on. And those remortgaging next year could see annual payments rise by around £3,000.
Poorer households will be even worse off, the analysis finds, with the end of cost of living payments handed out to ease the pain of higher bills.
But many savers will receive a boost as interest income is on course to hit £90billion in 2024-25, up from £5billion in 2021-22 – equivalent to £3,000 per household on average.
But the benefits will disproportionately favour people aged 65 and over, who will gain six times as much.
In a glimmer of cheer for Rishi Sunak , the research projects that inflation is likely to have dipped below 3 per cent by the time of an election
In fact, two-thirds of the windfall will go to the 10 per cent with the most savings, who will be in line to receive £20,000 typically. The 50 per cent with the lowest savings will gain £100 on average.
Adam Corlett, at the Resolution Foundation, said: ‘The good news for the Government is that Britain’s economic outlook is improving as it enters a crucial election year. The bad news is the living standards outlook is still dire, with overall stagnation and further income falls on the way for less well-off households.
‘The worst of the cost of living crisis may be behind us, but except for those with significant savings, it is stagnant living standards rather than boomtime Britain that the immediate future has in store.’
Figures yesterday showed private sector growth went into reverse last month, with the worst performance since January. And in a new forecast published last night, the British Chambers of Commerce slightly upgraded its GDP growth outlook for this year from 0.3 to 0.4 per cent, but warned the next couple of years look gloomier than previously thought.
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