Workers could face two decades without a real-terms pay rise, IFS calculates
The Institute for Fiscal Studies said the budget predictions for economic growth “make pretty grim reading”
Money and a payslip - Image credit: Nick Ansell/PA
Workers may face not one, but two decades without a real terms pay rise, according to Institute for Fiscal Studies (IFS) calculations based on Wednesday’s budget.
The economic research institute said that the forecast for productivity, earnings and economic growth “make pretty grim reading”.
It also warned that we are not at the end of austerity, “not by a long chalk”.
According to the IFS predictions, average earnings look like they will be nearly £1,400 a year lower than forecast 18 months ago, and still below their 2008 level.
“We are in danger of losing not just one but getting on for two decades of earnings growth,” it said.
This is based on a predicted GDP per capita by 2021 that is 3.5 per cent lower than was predicted in March 2016.
While it reminds that the figures are only forecasts, it warns that the knock-on effect of this will be increased borrowing.
The institute notes that borrowing for this year looks better than predicted because of a change in classification of housing associations and some other OBR measures, but even so, borrowing is now expected to be £12bn higher by 2020-21 than was forecast in March this year, before any policy changes.
It also suggests that while a giveaway is planned to boost the economy, peaking at £9bn in 2019-20, this “magically becoming a takeaway” by 2022-23.
It suggests that taking the figures at face value “would probably be a mistake” and “the purse strings are likely to be loosened again” as 2022-23 gets closer.
The IFS comments: “Less than two years after Mr Osborne was promising a surplus of £10 billion in 2019–20, Mr Hammond is promising a deficit of £35 billion falling, rather optimistically, to £25 billion by 2022–23.
“Note that even without any forecast revisions the 2020–21 surplus would have been wiped out by new policy measures announced since March 2016.
“Yet this is not the end of “austerity”. Not by a long chalk.
“There are still nearly £12 billion of welfare cuts to work through the system, while day-to-day public service spending is still due to be 3.6 per cent lower in 2022–23 than it is today.
“Excluding health, the cut for the rest of public services is over six per cent – to keep this spending constant in per capita terms spending would need to be £13 billion higher in 2022-23 than currently planned.
“The figures published yesterday also imply yet one more year of spending restraint. As the years go by the end of austerity keeps slipping out of view.”
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