Britain is at risk of the first sustained rise in inequality since the late 1980s as poorer families face three years of stagnating incomes, according to the Resolution Foundation.
The thinktank warned that government cuts to working-age benefits were damaging prospects for 8 million low and middle-income households, as the rollout of £14bn of welfare reductions offsets the gains from policies such as the “national living wage”.
The foundation’s latest annual report on the outlook for living standards said although higher-income households were likely to experience an increase, income growth would be weak, partly because interest rate rises over the next few years are expected to dampen disposable income growth for homeowners.
Torsten Bell, the thinktank’s director, said: “This parliament risks seeing the first sustained rise in income inequality since the 1980s.
“But the story this time around is less about the rich soaring further away, and more about poorer families falling further behind as they bear the brunt of £14bn of welfare cuts.
“Lots of factors lie behind projections of a parliament of weak income growth, many of which are beyond the government’s immediate control. But it is policy decisions, not capitalism, which look set to drive living standards of low and middle-income families down and inequality up in the years ahead.”
The foundation has forecast that following a fall in real incomes in the current financial year, as inflation outpaces wage growth, median incomes will start to rise again next year as inflationary pressures ease and pay growth picks up.
However, increases are expected to be weak, peaking at 1.3% by the end of this parliament, well below the 2.1% average rate of household income growth before the financial crisis.
Adam Corlett, a senior economic analyst at the foundation, said: “2017 was a disastrous year for living standards, as high inflation caused pay packets to shrink and made the cash freeze in working-age benefits bite harder.
“The good news is that living standards are set to start rising again next year. The disappointing news is that the recovery is set to be slow. And the really worrying news is that low and middle-income households could miss out altogether, with three years of stagnating incomes running right through to 2020.”
The financial crisis took a heavy toll on UK living standards, as prices roses faster than wages in the six years from 2008. After brief respite in 2015 and 2016, falling real pay returned in 2017 as the sharp drop in the value of the pound following the Brexit vote drove up the cost of imported goods and fed through to higher inflation.
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