Pay packets could drop by £1,200 a year, foundation warns

The ongoing economic impact of the pandemic could see the average pay packet drop by £1,200 a year by 2025, according to a leading think tank.

A report by the Resolution Foundation warns the current crisis is causing immense damage to the public finances and permanent damage to household finances too.

It notes that by the middle of the decade, average wages are now on track to be £1,200 lower than forecast pre-pandemic.

According to the report, household incomes are on course to grow by just 10% in the 15 years since the start of the financial crisis in 2008, compared to the 40% growth seen in the 15 years running up to the crisis.

An overnight analysis of yesterday’s Spending Review by the think tank also warns that the new £4bn Levelling Up Fund may be hampered by Whitehall’s highly centralised and risks being bogged down in politics, rather than swiftly getting investment into communities.

The chancellor announced some details of the fund yesterday, which will be administered by three Whitehall departments.

‘The Covid crisis is causing immense damage to the public finances, and permanent damage to family finances too, with pay packets on track to be £1,200 a year lower than pre-pandemic expectations,’ said chief executive, Torsten Bell.

‘The pandemic is just the latest of three ‘once in a lifetime’ economic shocks the UK experienced in a little over a decade, following the financial crisis and Brexit. The result is an unprecedented 15-year living standards squeeze.

‘Yesterday, the chancellor chose to ramp up his Covid spending to £335bn. But he also quietly dialled down his spending plans beyond the crisis. For all the talk of ending austerity, its legacy will continue for many public services throughout the parliament.

‘While the priority now is to support the economy, the permanent damage to the public finances mean taxes will rise in future. But which taxes those will be, like which Brexit we can expect, are questions the chancellor left for another day,’ added the chief executive.

To read more reactions to yesterday’s Spending Review, click here.

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