A REPORT from a leading think-tank this week warning that “a deep living standards downturn is just getting going” in the UK makes for very worrying reading indeed.

Alarming too is the Resolution Foundation’s observation in its “Living Standards Outlook 2022” report that “the prevalence of absolute child poverty is projected to be higher in 2026/27 than in 2019/20, with a large rise between 2020/21 and 2022/23 even before we consider the impact of the war in Ukraine”.

The think-tank also highlights the huge squeeze on the real incomes of people in receipt of benefits.

What is clear is financial misery lies ahead for many households.

The Resolution Foundation warns inflation could soon rival the rate in 1991 (which was the highest since the recession of the early-1980s under Margaret Thatcher). And it forecasts a fall in typical real household incomes for non-pensioners on a scale only seen previously in the mid-1970s, early-1980s, and amid the global financial crisis more than a decade ago now.

The warning of a “deep” deterioration in living standards will be no surprise to many who know the Boris Johnson administration’s hike in national insurance contributions comes into effect next month, along with a massive rise in energy bills for huge numbers of households on variable tariffs. Regulator Ofgem last month announced a £693 per year or 54 per cent hike in the energy price cap for a typical dual fuel customer, effective from April 1. The Resolution Foundation rightly points out the UK Government needs to do more than it has to cushion households from rocketing electricity and gas bills, flagging the “incredibly disappointing outlook for income and poverty” in its report.

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Consumer prices have already surged across the board. We are in one of those periods in which it has become usual once more to hear people complain about surging prices, and some empty shelves.

Annual UK consumer prices index inflation had by January jumped to 5.5%, its highest since 1992. It was 0.4% in February last year.

The Bank of England has raised UK base rates from a record low of 0.1% to 0.5%, with a further quarter-point increase later this month forecast by nearly two-thirds of economists in a poll in February by Reuters. Rising borrowing costs are another burden on households at the worst possible of times but the Bank of England faces an extremely difficult juggling act – interest rates might have to climb higher than would otherwise have been the case if it does not act quickly enough to tackle the inflation problem.

There has been one nasty upside surprise after another on the UK inflation front. And expectations of where inflation will peak have just kept on rising.

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The inflation situation looked very problematic indeed even before the Russian invasion of Ukraine, which has sent energy prices soaring. Mounting inflation worries have meanwhile rattled stock markets.

The Bank of England’s revised inflation outlook published in February forecast annual CPI inflation would peak at around 7.25% in April. This forecast high is around two percentage points greater than the Bank’s projection just three months earlier.

With the inflation situation having deteriorated significantly since last month, the Resolution Foundation’s projection this week that the peak in inflation will be greater than 8% was striking but not surprising.

The think-tank notes the main drivers of high and rising inflation are wholesale prices of gas and oil, which rose rapidly following the re-opening of the global economy, and “have increased sharply again since Russia invaded Ukraine”.

It adds: “Considering the impact on petrol and energy costs alone leads us to estimate the monthly peak of [annual] inflation will now exceed 8% this spring, and could rival the 8.4% reached in 1991, in turn the highest inflation since 1982.”

The think-tank is now assuming prices in the forthcoming 2022/23 financial year will on average be 7.6% higher than in the current year to March 31. And it notes “this ignores any possible impact on food prices which, if it did occur, would be particularly skewed towards low-income households”.

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The Resolution Foundation also lays out huge challenges in the immediate future for low and middle-income households in receipt of benefits such as universal credit and tax credits as a result of the uprating of these lagging the surge in inflation.

It is calling on Chancellor Rishi Sunak to “revisit this year’s benefit uprating in or before the Spring Statement”, scheduled for March 23.

The think-tank explains: “Because each financial year’s benefit uprating is based on inflation from the previous September, even the October 2021 energy price cap rise will not be reflected in benefit rates until April 2023. Although uprating policy does mean that core benefits maintain their real value in the long run, the benefits rollercoaster...is set to cut £10 billion in real terms from benefit income in 2022/23.”

As well as the unacceptable impact on households, such a squeeze will drag on economic recovery because many of those on lower incomes have to spend all they have to live.

The Resolution Foundation proposes the UK Government should “increase benefits by more this year, and less next year”.

It says: “For as many benefits as administratively possible, but at least UC and tax credits, uprating this April should not be 3.1% but 8.1%. Those benefits that are harder to change at short notice should be increased as soon as possible, and at the very latest in October when the energy price cap is now almost certain to rise again. Benefit increases in April 2023 would then be reduced accordingly.”

Before anyone starts jumping up and down and shouting about how the public finances could not withstand this, the Resolution Foundation rightly points out what it is proposing “would not be a permanent change to benefit rates, or public spending, but would significantly protect real incomes for poorer households in the difficult year ahead”.

The think-tank says of the overall picture: “Focusing on median living standards – and excluding pensioners – our modelling suggests that household incomes were relatively protected in 2020/21, with growth of perhaps 1% despite a large fall in GDP (gross domestic product) and grew again in 2021/22, by another 1%. In contrast, despite forecasts for robust GDP growth in 2022, with the IMF (International Monetary Fund) forecasting 4.7% growth, there is an incomes recession ahead of us. Inflation of 7.6% in 2022/23 would leave the typical real household income for non-pensioners 4% – or £1,000 – lower than in 2021/22. This is a scale of fall only previously seen around the recessions of the financial crisis, early-1980s and mid-1970s.”

It offers a grim outlook, declaring: “Even if we assume no significant lasting fallout from the situation in Ukraine, real incomes are also projected to fall in 2023/24 – with typical incomes dropping by 2%.”

The Resolution Foundation notes: “Falls in typical real income for two successive years have never been experienced outside of recessions.”

It also points out that, for real incomes, “the forecast beyond 2023/24 is not encouraging either, with no rapid rebound from the period of high inflation”.

The think-tank calculates, “comparing four or five-year periods corresponding to Westminster parliaments”...“2019/20 to 2024/25 is currently on track to be the worst on record for income growth – even assuming there is no long-run impact of the war in Ukraine on living standards – with the typical non-pensioner income falling 2%, compared with a 1% drop between 2005/06 and 2010/11”.

And it declares: “Coming on the back of the financial crisis and post-[Brexit] referendum inflation spike, such poor growth in this parliament would leave the 20-year period from 2005/06 to 2025/26 with an enormous growth shortfall: if incomes had grown in line with the previous long-term trend, the typical income in 2025/26 would be 43% (£11,000) higher than currently projected.”

You would hope members of the Johnson administration would heed the stark contents of the Resolution Foundation report, and reflect on how to help those hardest hit, for the good of the economy and society. However, this is a UK Government which seems out of touch with the impending huge impact of the energy price crisis, took away a £20 per week temporary uplift in universal credit put in place to help households struggling through the pandemic, and is hiking national insurance.

The Conservatives’ dismal track record on the economy and welfare since 2010 would suggest, sadly, no help is coming for households.