Workers to experience worst decade of wage growth in up to a century

Written by John Ashmore and Jenni Davidson on 25 November 2016 in News

In 2021 UK workers will earn less than they did in 2008, according to the IFS, while the Resolution Foundation says lower income households will be hardest hit

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Workers face the "dreadful" prospect of earning less in 2021 than they did in 2008, the Institute for Fiscal Studies has said. 

And the Resolution Foundation predicts that the income squeeze is set to be even more severe than it was in the last parliament.

It also forecasts that average incomes will grow by less than half the “exceptionally weak growth” seen between 2010 and 2014, when the UK was recovering from the financial crisis.


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The gloomy forecast means the UK is on course for more than a decade without any real earnings growth overall, the worst sustained period of flat wages in 70 years, possibly even a century.

The Office for Budget Responsibility expects earnings to grow by less than five per cent over the next five years, down 3.7 per cent on their March forecast.

According to the IFS, the picture for economic growth and people's incomes has "deteriorated pretty sharply" over the last nine months, largely due to the impact of the Brexit vote. 

IFS director Paul Johnson said the tax and spending measures outlined by Chancellor Philip Hammond would do "not a lot" to alleviate the squeeze on living standards faced by millions of households.

Speaking at a briefing yesterday, he said: "Around half of the wage growth projected for the next five years back in March is not now projected to happen. 

“On these projections real wages will, remarkably, still be below their 2008 levels in 2021. 

"One cannot stress enough how dreadful that is – more than a decade without real earnings growth. We have certainly not seen a period remotely like it in the last 70 years."​

Higher inflation will also mean the value of the higher national living wage is reduced from a 25 per cent real-terms rise to 20 per cent between now and 2020. 

Johnson also observed that Philip Hammond had strongly prioritised extra capital spending on infrastructure, rather than spending money on helping households with the cost of living. 

"Given the choice between jam today in the form of more money in people’s pockets and jam tomorrow in the form of potential economic returns from greater investment, he went for jam tomorrow," he said. 

The Resolution Foundation said that in contrast to the last parliament, which saw slow income growth across the income distribution, but with higher earners marginally the most affected, low and middle income families are to be hardest hit in this one because of the UK Government’s decision to press ahead with welfare cuts.

The entire bottom third of the income distribution is on course to see their incomes fall in the years ahead, it said.

Torsten Bell, Director of the Resolution Foundation, said: “Most of the initial reaction to the Autumn Statement has understandably focused on the big hit to the public finances, but just as important is the very real impact on family finances.

“The combination of lower growth, higher inflation and the government’s decision to press ahead with big welfare cuts, means that households risk experiencing even slower income growth in this parliament than they saw in the aftermath of the financial crisis .

“But unlike the last parliament, it will be low and middle income households who feel the tightest squeeze this time round.”

And Resolution Foundation chief economist Matt Whittaker said the Chancellor had loosened fiscal rules so much that they should be seen “not as rules guiding fiscal policy” but as a “worst case fiscal ceiling”.

He said: “Such a loosening is understandable given the high degree of uncertainty in any forecasts, but it also reflects a decision to allow borrowing to rise so significantly that national debt is now expected to end the parliament higher than it started, despite very significant cuts to public spending and welfare.”

“Behind this fiscal deterioration lies a far weaker outlook for earnings, which means that workers are on course to experience the weakest decade of pay growth in over a century.”



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