Households are projected to be more than £1,000 worse off annually by 2029, a bleak outlook stemming from the ongoing energy crisis and rising tax burdens, according to a new assessment by the Resolution Foundation.
The think-tank's analysis indicates that the 2020s are on track to be the worst decade on record for real household disposable income (RHDI) per head since records began in the 1960s.
In a critique of a recent government budget, Resolution Foundation chief executive Ruth Curtice described the measures as 'scattergun,' noting that while some relief, such as £100 off energy bills for homes in lower council tax bands and a suspension of VAT on electricity, is being offered, it is insufficient. Curtice warned that even households receiving this assistance will face higher energy bills next year than they did during the 2022 crisis.
The report, which utilized Department for Work and Pensions data, projects that median non-pensioner real incomes will grow by only 1.8% across the current parliamentary term, equivalent to a cumulative increase of £600. However, the think-tank stressed that nearly all of this growth has already occurred, with the outlook from 2026-27 onwards described as 'dire.' The projection shows a 3% fall in incomes between 2026-27 and 2028-29, amounting to a £1,050 annual drop for typical non-pensioner households. This decline is attributed to falling real wages, an increasing tax burden, and housing costs rising faster than inflation.
Curtice stated that the budget "did little to address the sharp challenges facing Britain" and that cost-of-living support is "spread far too thinly." She added that "Next year the choices will unavoidably get starker."
The independent Office for Budget Responsibility (OBR) presented a similarly somber outlook in its accompanying forecasts. The OBR anticipates no growth in real earnings in 2027 and 2028, with a recovery to only 0.5% per year by 2030 in its central forecast. This is partly due to firms expected to pass national insurance hikes onto workers rather than absorbing them through lower profits.
The OBR's RHDI per head metric, a measure of income after taxes and benefits, adjusted for inflation, also paints a grim picture. The watchdog noted that wage and benefit growth this year is being outweighed by higher prices and taxes on income and wealth. Inflation, exacerbated by global events, is impacting real wage growth while increasing nominal earnings, which in turn leads to higher effective tax rates due to frozen income tax thresholds.
While an easing of energy prices is expected to partially recover RHDI per person, averaging 0.75% annually up to 2030-31, the overall level is still forecast to be worse than previously projected. The OBR characterized this as a continuation of historically weak performance since the 2008 financial crisis, with growth averaging just 0.25% per year over the decade to 2025-26. By 2029-30, the OBR projects that the average growth over the preceding decade will be less than 0.1% per year. Consequently, RHDI per person is expected to be only 1% higher than its pre-pandemic level by 2029-30.
David Miles of the OBR described the situation as "a pretty grim picture," noting that real household disposable income per person has seen virtually no growth since just before the COVID-19 pandemic.