Recent research suggests that the COVID-19 crisis may result in pay cuts of almost £1,200 per year by 2025.
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The statement from the Resolution Foundation comes just one day after Chancellor Rishi Sunak warned the nation about increasing unemployment numbers. Unemployment is predicted to increase to about 2.6 million by mid-2021, which will likely continue to affect living standards in Britain for years to come.
By current estimates, the economy is predicted to shrink by 11.3% in 2020, which represents the largest fall in output in over 300 years. The situation of thousands of households all over the country is precarious, with many struggling to meet even daily basic expenses.
Torsten Bell, the CEO of the Resolution Foundation, said "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.”
The Resolution Foundation’s report revealed that the rate of growth in household incomes had slowed significantly over the past years, even before the pandemic hit. By 2023, 15 years on from the start of the financial crisis of 2008, household incomes are expected to only grow by 10%. This is in stark contrast to the fifteen years leading up to the financial crisis, during which household incomes increased by 40%.
Households are expected to lose even more money over the next months, due to a planned reduction in the payouts via the Universal Credit scheme. The foundation also anticipates that added pressure will arise from tax increases; the government will need to begin recouping the massive borrowing and spending required to deal with the economic fallout of the pandemic.
Mr Bell warned, "While the priority now is to support the economy, the permanent damage to the public finances mean taxes will rise in future. 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.”
Chancellor Rishi Sunak, in his Spending Review, reiterated the government’s support towards pulling the UK out of the current economic downturn, further pledging an addition £280 billion this year to help cope with the crisis.
While the Chancellor’s announcement is a welcome move in the interim, it remains to be seen what actions the government plans on taking to revitalise the UK economy in the longer term.