No recovery in living standards till 2023

It may take another decade before low-to-middle income families see their living standards return to pre-recession levels, the Resolution Foundation think tank is warning. The prolonged downturn means a 'large swathe' of the population faces a permanent reduction in their expected levels of prosperity.

Key points

If the typical earnings for families on low-to-middle incomes rose by an average of 1.1 per cent a year above inflation – achievable by historical standards – their earnings would recover to £22,000 a year by 2023, the equivalent of where they stood in 2008.
Even if achieved, this earnings recovery would still represent a permanent loss compared with original expectations. Without the prolonged downturn since 2008, typical earnings for low-to-middle income groups might now be expected to stand at £27,500: but to reach that level over the next decade would require annual real earnings growth of 3.3 per cent, which seems unattainable based on current projections and past experience.
Two-thirds of households in the low-to-middle income group have savings of less than a month's net income.
It would now take 22 years for a household on a low-to-middle income to save for an average deposit on a first-time buyer property; and for the first time in recent history the majority of those on low-to-middle incomes under the age of 35 live in private rented property.
The squeeze on the low-to-middle income group is not just a result of recent fiscal austerity: it is much longer term and more deeply seated. The struggle with stagnant wages, high levels of debt and a heavy reliance on rising tax credits reaches back before the financial crisis.

A report from the Office for National Statistics has also highlighted the squeeze on earnings. It says real wages in overall terms were no higher in 2012 than a decade earlier. Real wages have fallen for three consecutive years since 2009, suggesting that any recovery has yet to begin.