Family households set to be £2,100 worse off - claim

Typical household disposable incomes for working-age families are on track to fall by three per cent this financial year, and by four per cent next year.

This will mean the two-year cost-of-living squeeze is set to leave families £2,100 worse off and only the very richest households will see their incomes rise, according to new research by the think tank the Resolution Foundation.

It uses data from a new YouGov survey of 10,470 adults to assess how people are coping with the cost-of-living crisis this winter, and looks ahead to how the scale and nature of the crisis will evolve in the years ahead.

The report notes that the financial year ahead (2023-24) should be one in which inflation starts to fall rapidly, having spent much of 2022-23 at double digit levels.

However, this will be offset by a range of living standards headwinds, from higher energy bills (the slimming down of government support will cause the typical energy bill to rise from £2,000 in 2022-23 to £2,850 in 2023-24 despite falling wholesale prices), to rising personal taxes (threshold freezes will increase tax bills for a middle-income household  by around £700 from April).

In addition - for those families owning rather than renting - there will be rising mortgage costs for three million households (with mortgagor households experiencing a 12 per cent income fall over the two-year period).

As a result, typical after-housing-costs incomes for working-age families are set to fall by three per cent in 2022-23, and by four per cent in 2023-24 – a seven per cent fall over two years’, worth £2,100 for a typical family. 

The scale of this fall is considerably tighter than the post-financial-crisis squeeze (five per cent between 2009-10 and 2011-12) and - when combined with what the resolution Foundation calls “a weak recovery from 2024 onwards” - would leave typical household incomes still below pre-pandemic levels even by 2027-28.

The foundation’s new report finds that 23 per cent of adults said they couldn’t afford to replace or repair major electrical goods, up from eight per cent pre-pandemic, while 11 per cent said that they were hungry but didn’t eat because of a lack of money in the past month compared with five per cent pre-pandemic.

The authors add that with the crisis currently being driven by the higher cost of essentials like food and energy, lower-income families are finding it hardest to cope. 

Among people in the poorest fifth of working families, 32 per cent say they are not confident about their finances as a whole over the next three months (compared to 19 per cent overall), while 34 per cent say their health has been affected by the rising cost of living (compared to 21 per cent overall).

Finally, the foundation notes that while the outlook for living standards is bleak, it is also far from certain. For example, further falls in wholesale gas prices could accelerate the fall in inflation, easing the cost-of-living crisis for all households.

It adds that a productivity-driven one per cent annual increase in forecast wage growth would also accelerate the UK’s post-crisis and recovery, and bring forward a return to pre-pandemic disposable income levels to 2025-26.

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