Real wages set to fall for three years

A new report shows that cuts, rising inflation and stagnating pay will make lower middle classes £720 a year worse off. It shows that wages will fall in real terms until 2013.

A new report released today by the Resolution Foundation shows that a ‘“Triple crunch” will see lower middle classes £720 a year worse off’ thanks to government cuts, rising inflation and stagnating pay. The report shows that wages will fall in real terms until 2013.

The Guardian reports that:

“researchers find that families will see their wages fall in real terms on average by almost 4% over the next year as “major cuts overlap with a fragile jobs market”…

“While the foundation welcomes the coalition government’s increased tax allowances and lowered national insurance thresholds for lower income families – which will put £340 into their pockets – this is wiped out as childcare support is cut and plans to reduce spending on tax-credits by £6.2bn in the period to 2014/15 begin to take hold.”

The key graph shows annual changes in average earnings and prices before and after the crash. For wages to rise relative to prices, the green line must be above pink line. This is unlikely to occur again until 2013 according to the study.

The findings are reinforced by the latest Asda income tracker which shows a £4 a week decline in family spending power compared with the same month a year ago and the tenth consecutive month of decline as the cost of essential goods and services rises above increases in gross incomes.

The impact of the cuts are also covered in the morning papers. In The Times (£):

Economists said that the Government’s austerity plans would act as a drag on growth as consumers continued to batten down the hatches amid growing unemployment and an uncertain economic outlook.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “It remains likely that growth will lose significant momentum over the coming months as the fiscal tightening increasingly bites and adds to the pressures on already stretched consumers.”

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