Britain on track for 20 years of no pay development, says Resolution Foundation

Britain is on course for more than two decades of lost pay growth after Rachel Reeves’ Budget tax raid on private sector workers.

The Resolution Foundation also warned that the Chancellor would preside over the weakest growth in living standards under a Labour government on record.

The think tank said pay growth was likely to remain stagnant under Labour after Ms Reeves hit employers with a £25bn national insurance increase, despite her vow to protect the pay packets of working people.

It highlighted that under the Tories, real pay was on course to rise by 1.7pc over the next four years.

Instead, wages after inflation were now on course to shrink by 0.3pc over the next two years and rise by just 0.4pc until the end of the decade. “[Real] average earnings end up in 2029 just shy of where they were in 2008,” it said.

“This will extend the UK’s long pay stagnation. In 2028, average weekly earnings are set to be just £13 higher than they were in 2008.”

The Office for Budget Responsibility (OBR), Britain’s tax and spending watchdog, warned on Wednesday that millions of workers faced years of stagnant pay as employers pass on the cost of higher taxes onto their workers through lower pay growth.

The OBR also warned that Ms Reeves’ decision to borrow to fund public spending would keep inflation higher for longer and bear down on growth.

James Smith, research director at the Foundation, said Labour’s tax rises would inevitably hit working people.

He said: “We’re now back to a very weak forecast for living standards increases – particularly as those tax increases really hit living standards and income. Growth in this forecast, is stronger than the previous parliament, which was the weakest parliament on record, but we think it’s the weakest for a Labour government since 1955. So, a really weak set of living standards.”

The Foundation said real household disposable income per person (RHDI) – which is a proxy for living standards – is set to rise by 0.5pc across this Parliament on an annualised basis. This equates to a total income gain of £700 per person between 2024 and 2029, it said. 

“When we look across the entire period of the last Labour Government (between 1997-2010), RHDI rose by a relatively strong 1.9pc on an annualised basis – equating to an overall income boost of £5,400 per person – even though this period of Government included the financial crisis.”