Autumn Statement 2016: Squeeze to be worse than last parliament

Lower earnings growth and ongoing welfare cuts mean that a renewed income squeeze will be more severe than the last parliament.

Lower earnings growth, higher inflation and ongoing welfare cuts detailed in the Autumn Statement mean that a renewed income squeeze is set to be even more severe than that seen in the last parliament, according to a new report published by the Resolution Foundation analysing the impact of the Autumn Statement 2016.

The report finds that on average incomes are set to grow by less than half the exceptionally weak growth seen between 2010 and 2014 as the country recovered from the financial crisis.

In contrast to the last parliament, which saw slow income growth across the income distribution but with higher earners marginally the most affected, low and middle income families are set to be the hardest hit in this one.

That’s because of the government’s decision to press ahead with significant cuts to welfare, including Universal Credit, and because the recent jobs miracle which has seen employment climb to a record high is unlikely to be repeated. The Foundation says that the entire bottom third of the income distribution is on course to see their incomes actually fall in the years ahead.

The Foundation also finds that the weak outlook for real average earnings, which the OBR forecasts to be £830 lower in 2020 than previously expected, means that the decade from 2010 to 2020 is set to be the weakest one for wage growth since the 1900s.

Feeling the squeeze

Real weekly earnings are forecast to grow by just 1.6 per cent over the decade, compared to 12.7 per cent in the 2000s and over 20 per cent in every other decade since the 1920s.

The increase in borrowing set out in the Autumn Statement is so severe that national debt as a percentage of GDP is expected to be higher at the end of the parliament than the beginning.

The Chancellor has effectively abolished the role of fiscal rules in providing an anchor for fiscal policy. Instead he has loosened them to such an extent that they are able to accommodate another public finances hit on the scale of Brexit and still have further leeway of £9 billion in 2020.

The welcome increase in public investment announced by the Chancellor has been wiped out several times over by an expected fall in private sector investment. Overall investment as a share of GDP is set to fall by 6 per cent by the end of the parliament, relative to expectations at the last budget.

Torsten Bell, director of the Resolution Foundation, thinks that most of the initial reaction to the Autumn Statement has understandably focused on the big hit to the public finances, but just as important is the very real impact on family finances.

Bell adds, ‘The combination of lower growth, higher inflation and the government’s decision to press ahead with big welfare cuts, means that households risk experiencing even slower income growth in this parliament than they saw in the aftermath of the financial crisis . But unlike the last parliament, it will be low and middle income households who feel the tightest squeeze this time round.

‘Tackling this renewed income squeeze will be a key challenge for the Chancellor and government in the months and years ahead.’

Matt Whittaker, chief economist at the Resolution Foundation, thinks that such a loosening from this years Autumn Statement is understandable given the high degree of uncertainty in any forecasts, but says, ‘It also reflects a decision to allow borrowing to rise so significantly that national debt is now expected to end the parliament higher than it started, despite very significant cuts to public spending and welfare.

‘Behind this fiscal deterioration lies a far weaker outlook for earnings, which means that workers are on course to experience the weakest decade of pay growth in over a century.’

Further reading on the Autumn Statement 2016

Owen Gough, SmallBusiness UK

Owen Gough

Owen was a reporter for Bonhill Group plc writing across the and titles before moving on to be a Digital Technology reporter for the

Related Topics

Autumn Statement