Low-income households ‘worse off in 2020 than 2008’

Millions of households are heading for a long period of falling or stagnant living standards unless bold steps are taken to ensure economic growth over the next decade is broadly shared, according to a commission report. It warns that even with a return to steady growth, living standards for many low-to-middle income households are likely to be lower by 2020 than they were in 2008.

The commission consisted of a broad group of leading economists, employers, trade unionists and heads of parents’ groups brought together by the Resolution Foundation think tank.

Key points

  • Compared with previous decades, there is a greater risk the gains from future growth may fail to reach low-to-middle income families.
  • New technology and globalisation are leading to a 'hollowing out' of middle-income jobs.
  • As many as 1 million women are missing from the workplace compared with better-performing countries, and the UK is also falling down the international league table for employment of older workers.
  • The long-term fiscal crunch means that tax credits, which played a crucial role in lifting living standards before 2008, won’t perform the same role again – regardless of who is in power after 2015.
  • Real wages are now significantly more sensitive to unemployment than in previous decades, meaning that unemployment may have to fall to very low levels before we can expect sustained pay rises.
  • Action is needed to boost employment among key groups, by expanding affordable childcare provision, and making work more attractive for older workers on low and middle earnings.
  • The benefits and tax system needs to do more to support employment, and the burden of unfair taxes must be reduced. Universal credit should be made as generous to second earners (overwhelmingly women) as first earners; child tax credit should be increased for parents of pre-school children, and cut for parents of older children; and council tax for lower-value properties should be cut by introducing new bands for the highest-value properties.
  • There should be a major drive to tackle low pay, including expanding the powers of the Low Pay Commission.
  • In the longer term the education system should focus on qualifications at 18, helping more young people to compete with graduates for good jobs.

The commission emphasises its view that future improvements in living standards will have to come from higher employment and pay rather than state support. It recommends raising extra revenue by cracking down on pension tax relief for the most affluent, means-testing pensioners' winter fuel allowance and television licences, and extending national insurance contributions to those working beyond the state pension age.

SourceGaining from Growth, Commission on Living Standards/Resolution Foundation
LinksReport | Resolution press release | Guardian report (1) | Guardian report (2) | Telegraph report