UK Household Incomes Face Squeeze Amid Rising Taxes and Global Instability, Watchdog Warns
The Office for Budget Responsibility forecasts minimal real earnings growth and stagnant disposable income over the next decade.
Household incomes in the United Kingdom are projected to experience a significant squeeze over the coming years, with rising taxes and the impact of the Middle East crisis contributing to what the Office for Budget Responsibility (OBR) describes as a "lost decade" for real earnings.
The independent OBR, in its forecasts accompanying the latest Budget, warned of stagnant real earnings in 2027 and 2028. The central forecast anticipates growth only recovering to 0.5 percent annually by 2030. This sluggish performance is partly attributed to businesses expected to pass on proposed national insurance hikes to workers rather than absorb the costs through reduced profits.
The outlook for real household disposable incomes (RHDI) per head, a key metric for personal financial well-being, is also bleak. The OBR noted that current boosts from wage growth and benefits are being outweighed by increased prices and taxes on income and wealth. The inflation surge, partly linked to geopolitical events in the Middle East, is pushing down real wage growth while increasing nominal wages. This, in turn, negatively impacts RHDI due to frozen income tax thresholds that effectively raise tax rates as nominal earnings climb.
While an anticipated easing of energy prices is expected to contribute to a partial recovery in RHDI per person, averaging an estimated 0.75 percent annually up to 2030-31, the overall situation is forecast to remain weaker than previously projected in March.
The OBR highlighted that this trend represents a continuation of historically weak performance since the 2008 financial crisis. The period following the credit crunch saw significantly slower growth in productivity and real wages. The report indicates that over the decade leading up to 2025-26, growth in real household disposable income per person averaged a mere quarter percent annually, a historic low. The OBR expects this figure to decline further in the short term.
By 2029-30, the OBR's central forecast suggests that the average annual growth in RHDI per person over the preceding decade will be less than 0.1 percent. Consequently, ten years after the onset of the COVID-19 pandemic, RHDI per person is projected to be only one percent higher than its pre-pandemic level.
David Miles of the OBR described the outlook as a "pretty grim picture," noting that real household disposable income per person has experienced virtually no growth since the period just before the pandemic.