Households are confronted with a miserable period of stagnant standard of living as the wage growth delays and stealth taxes bite.
The warning from the Office for Budget Responsibility (OBR) came despite the bragging Rachel Reeves that families will be better off £ 500 a year at the end of this parliament.
But a criterative standards were partly accused of £ 25 billion budget attack from Labor about the national insurance of the employer, which will be passed on by some companies in the form of smaller wage increases.
Analysis by the OBR suggested that life will become more difficult for consumers before it gets better – and even that will only happen if Mrs. Reeves does not organize a new tax attack.
It also predicted that a peak in inflation will be worse this year than previously feared.
The Chancellor tried to paint a rosy picture of the prospects for household incomes when she delivered her spring statement yesterday.
She grabbed official figures that were published hours earlier, which showed that inflation fell to 2.8 percent last month.
Yet the figures were described by experts as a 'false dawn' and a 'red herring'.
Chancellor Rachel Reeves leaves No 11 Downing Street to deliver her spring statement
Households are confronted with a miserable period of stagnant standard of living, because wage growth slows down and bite stealth taxes
Chancellor of the treasury Rachel Reeves with the British Minister of Defense John Healey
And the OBR said that the costs of living would make it clear within a few months, because it predicted that inflation will rise to 3.8 percent in July – thanks to higher energy prices, food prices and water bills.
The watchdog had previously predicted that inflation would peak only 2.6 percent this year.
Mrs. Reeves has also seized part of the OBR prediction, which shows that the real disposable income in the household will rise faster than previously thought.
The measure, which takes wage growth and removes the impact of inflation and taxes, is used to calculate the standard of living of domestic livelihood.
The OBR said that the prediction for living standard per person was 'somewhat' higher than previously thought in the next five years.
But it warned, while employees would see income increasing this year, they will stagnate in 2026 and 2027.
This is partly because companies' will have more room to pass on higher costs of the increase in the national insurance policies, “said the OBR.
Companies will be more willing to keep wages back, because unemployment is expected to be worse than previously thought, which translates into an additional 160,000 people in the Dole -Arrow Row.
At the same time, stealth taxes will swallow an increasing amount of wages – frozen with income tax thresholds, which means that more and more people are dragged in paying tax at higher rates.
In the coming years it will come to a 'sharp delay' in living standards, the OBR said.
And they only start recovering from the 2028/29 financial year if, according to the current plans, the freezing of income tax thresholds, which was introduced in 2021, ends.
However, that outcome will probably be questioned, given the precarious state of public finances and the widespread speculation that the Chancellor must organize a new tax attack this fall. Even if that assumption comes out, the rise in the standard of living will only amount to an average of half percent per year in the coming five years.
Professor David Miles, a member of the Budget Responsibility Committee of the OBR, said that although employees are currently enjoying the wage increases above inflation, they would fall 'to hardly exceed inflation'.
And while the Chancellor brought up yesterday about placing 'more money in the pockets of working people', Professor Miles was much more downbeat.
He said: 'There is some growth in the real disposable income, but to be honest, it is a fairly low rate compared to the longer history of the UK. It is something like half percent a year. People used to get used to … the real incomes of most people who go up about two percent a year.
“So half a percent a year for five years would be a period of very low growth in real disposable income for households.”
The Resolution Foundation, a think tank, said: “While the outlook for growth and standard of living have improved in the medium term, the big whole still looks gloomy.”
It said that the new predictions meant that the best disposable income for households would rise by only £ 1,200 in the course of the 2020s, against £ 2,900 in the years 2010, and £ 4,800 in the decade that runs to the 2008 financial crisis.
