Britain is facing an 'extraordinary and dreadful' income crisis
In its traditional post-Autumn Statement briefing, the IFS - a well-respected research house - said that the latest forecasts provided by the Office for Budget Responsibility show that by 2021 real wages in the UK will actually be lower than they were in 2008, the year the impacts of the global financial crisis started to really bite.The IFS' Director Paul Johnson said that this is "extraordinary and dreadful," in a speech given on Thursday afternoon.Advertisement
"On these projections real wages will, remarkably, still be below their 2008 levels in 2021. One cannot stress enough how dreadful that is - more than a decade without real earnings growth. We have certainly not seen a period remotely like it in the last 70 years," Johnson said.
On Wednesday, the OBR - the independent agency created by the government to provide economic forecasts and analysis of the public finances - revised down its forecasts for real wage growth massively from its previous predictions released in March. Lower productivity and inflation driven by the huge slump in the pound witnessed in the aftermath of Britain's vote for Brexit are the key drivers for this slump.Unlike nominal wages, real wages are adjusted for inflation, providing a clearer picture of how much people actually earn. For example, if one year you get a 2% pay rise from the previous year, but inflation runs at 2.5%, your real income is falling.
In a series of prepared remarks, Johnson added:"The OBR is forecasting both lower nominal wage growth as a result of lower productivity, and higher inflation resulting from the exchange rate depreciation. Overall real average earnings are forecast to rise by less than 5% between now and 2021. That means they will be 3.7% lower in 2021 than was projected in March. To put it another way around half of the wage growth projected for the next five years back in March is not now projected to happen."The group worst hit by the lack of real income growth is, as has often been the case in recent years, the younger generation. Those aged between 22 and 30 have seen real incomes tumble 7% since 2007-08, while those over 60 have witnessed 11% growth, and those between 31 and 59 have seen earnings flatline, as the chart below illustrates:Advertisement
Institute for Fiscal Studies
Earlier on Thursday, an analysis by the independent think tank Resolution Foundation showed that both the richest and poorest parts of society will see a significant decline in their wages by 2020.The think tank's "Bending the Rules report deduces that the bottom 30% of earners will be worse off, thanks to a freeze on benefits and rising inflation. Meanwhile, the people with salaries in the top 10% threshold will also be hit. Advertisement
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