Wages are not expected to return to 2008 levels until 2026, with the average salary currently around £14,000 below what it would have been had the pre-financial crisis growth rate had continued, a think-tank has claimed.
Post-Budget analysis from the Resolution Foundation finds that by the end of this year, average wages would have grown by just 0.2% in real terms per year since the Conservative government moved into Downing Street in 2010, while GDP per capita would have grown by 0.8% per year.
Both have grown at the slowest rate of any party’s period in office since the Second World War.
Had real wages kept growing at their pre-financial crisis pace, the average worker in 2023 would have been around £14,000 better off, the Resolution Foundation’s Back for more? Putting the Spring Budget into context briefing note suggests.
However, by the end of this year the average rate of unemployment throughout over the past 14 years of the Conservative government is expected to be 5.5%, lower than the 5.7% average seen during the previous Labour administration.
The report says the additional 2p cut in the basic rate of national insurance, on top of the 2p cut that took effect in January, will take NI to its lowest level since the 1980s. But 78% of this benefit will go to the top half of the household income distribution.
Seventy-nine per cent of employees will pay less tax as a result, with gains averaging at £450 per employee, but those who stand to benefit the most will be those earning £50,000 who will have an additional £1,200 in their pockets.
Workers earning £19,000 or less will lose more from threshold freezes than they gain from NI cuts, the analysis claims.
Taking into account all of the changes to personal taxes announced in this parliament – including NI, income tax, pensions tax, non-doms tax and capital gains tax – workers on middle and slightly higher earnings (£26,000 to £60,000) will be considered the net winners by 2027-28, with lower and higher earning taxpayers worse off. Just over half (55%) of employees would have seen an overall benefit to their financial position.
Typical households are set to gain £420 a year on average, while the poorest fifth gain £840 and the richest fifth lose an average of £1,500.
Torsten Bell, chief executive of the Resolution Foundation, said: “A pre-election Budget produced another round of pre-election tax cuts. Who could have seen that coming?
“Middle earners have come out on top, while taxpayers earning below £26,000 or over £60,000 will lose out. The biggest group of losers are pensioners, who face an £8 billion collective hit.
“Budgets are always a big day for Westminster, but the big picture for Britain has not changed at all. This remains a country where taxes are heading up not down, and one where incomes are stagnating.
“Big tax cuts may or may not affect the outcome of that election, but the task for whoever wins is huge. They will need to both wrestle with implausible spending cuts, and also restart sustained economic growth – the only route to end Britain’s stagnation.”
Pete Cooper, director of people partners and DEI at HR tech firm Personio, said the Resolution Foundation was “right to call out the impact of almost two lost decades of pay growth”.
He added pay stagnation was a “very real issue” for employees, and was having a real impact on their day-to-day lives and on their motivation and productivity at work.
Cooper added that, according to Personio’s own research, half (54%) of employees believe their current level of pay is not enough to comfortably pay living expenses, and 59% are worried about their financial stability over the next 12 months.
He said: “While we need to see further action from the UK government to support working households beyond yesterday’s budget, it is also important for organisations to be proactive. It’s not always practical to raise pay, but implementing regular performance reviews, giving timelines for progression, and ensuring people understand their total rewards package beyond their base salary will help to provide employees with reassurance and motivation during these testing times.”
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