Living standards to worsen by 2020

living standards to worsen

living standards to worsenLow and middle income households will have poorer living standards in 2020 compared to 2008, with incomes for the lowest groups set to fall by as much as 15%.

The prediction comes in a "sobering" report for the Resolution Foundation think-tank, by the Institute for Employment Research (IER) and Institute for Fiscal Studies (IFS), which looked at the changing structure of the jobs market together with the effects of the tax and benefits system.

Doom & gloom

Their report, Who Gains From Growth?, doesn't make for pretty reading. It predicts that a low income household which had a net income of £10,600 a year in 2008, would earn the equivalent of just £9,000 a year by 2020 - a decline of 15% in real terms, even if growth returns to the UK economy in the coming years.

On the other hand, a middle income household, which had a net income of £23,000 in 2008, would bring in £22,200 by 2020 - a real-terms decline of 3%.

These calculations were based on the assumption that GDP (gross domestic product) will recover steadily and then grow at a rate of 2.5% from 2015.

The report also said changes in the way work is spread out between households - and plans to alter the tax and benefit systems - will contribute to the decline in living standards.

More positive outlook

Despite this doom and gloom, a separate study revealed that households are the least downbeat about their finances in two-and-a-half years.

According to the Markit household finance index (HFI), some 40% of households predict their finances will deteriorate over the next 12 months, while 29% expect to see an improvement - the least pessimistic outlook since March 2010.

It said improved financial expectations are likely to have been helped by the least-marked squeeze on cash availability since December 2010, as savings declined at the slowest rate for two years.

The index stood at 38.4 in September, only slightly lower than a 20-month high of 38.9 posted in August and one of the highest figures seen in the past two years.

However, the figure still falls below the 50.0 mark. Readings above 50.0 signal an improvement and those below it indicate a deterioration.