Living standards for all UK families are set to fall by 2030, with those on the lowest incomes declining twice as fast as middle and high earners, according to new data that raises serious questions about Keir Starmer’s pledge to make working people better off.
The grim economic analysis, produced by the respected Joseph Rowntree Foundation (JRF), comes before the chancellor, Rachel Reeves, makes her spring statement on Wednesday in which she will announce new cuts to public spending rather than increase borrowing or raise taxes, so as to keep within the government’s “iron clad” fiscal rules.
In December, the prime minister announced a series of new “milestones” that he said would be passed before the next general election, which is likely to be held in 2029. The first of these was “putting more money in the pockets of working people”.
But with many Labour MPs already deeply concerned over Reeves’s plan to raise about £5bn by cutting benefits, including for disabled people, evidence that living standards are on course to fall markedly under a Labour government – and to decline most for the least well off – will add to the mood of growing disquiet in party’s ranks.
The JRF analysis rests on a realistic assumption that the Office for Budget Responsibility (OBR) will adjust its forecasts in line with the Bank of England and other main forecasters when it makes them public on Wednesday. The OBR is expected to halve the expected growth rate for this year from 2% to about 1%.
In what it describes as a “dismal reality”, the JRF said its detailed analysis shows that the past year could mark a high point for living standards in this parliament. It concludes that the average family will be £1,400 worse off by 2030, representing a 3% fall in their disposable incomes. The lowest income families will be £900 a year worse off, amounting to a 6% fall in the amount they have to spend.
The JRF also said that if living standards have not recovered by 2030, Starmer will not only have failed to pass his No 1 milestone but will also have presided over the first government since 1955 to have seen a fall in living standards across a full parliament.
Comparing 2030 with 2025, it said the average mortgage holder is set to pay about £1,400 more in mortgage interest annually and the average renter about £300 more in rent a year, while average earnings are set to fall by £700 a year. The JRF said the poorest third are being disproportionately affected by rising housing costs, falling real earnings and frozen tax thresholds.
Alfie Stirling, director of insight and policy at JRF, said further cuts were not the way to reverse the trend of falling living standards. Instead, he argued, Reeves should consider raising tax for the wealthiest.
“There is no doubt the government is facing an unenviable list of economic pressures and uncertainties, ranging from the domestic to the international. But how you manage these risks is a matter of political choice..
“It is wrong, and ultimately counterproductive, to try and rebuild the public finances through cuts to disability benefits. Instead, government should be addressing hardship and raising living standards directly, as part of their strategy for growth.
“Fiscal pressures should be met through tax reform. There are a number of options to raise revenue from those with the broadest shoulders, while also supporting growth by removing perverse incentives in the tax system and staying within the government’s manifesto commitments.”
Earlier last week a group of leading economists wrote to the Financial Times warning that it would be a “profound mistake” for ministers to cut spending or investment, adding that “the UK cannot cut its way to growth”.
Several areas of unprotected government spending such as prisons, justice and local government – the last of which has already seen real terms cuts of over 45% since 2010 – are likely to be in line for further cuts on Wednesday, casting doubt on Starmer’s claim that is not returning the country to austerity.
In her budget last October, Reeves left herself with £9.9bn of “fiscal headroom” – in effect, spare money in reserve – to allow her to meet her fiscal rule that says day-to-day spending must be matched by revenue coming into the Treasury.
But higher-than-expected borrowing costs on global markets, leading to higher debt interest payments, and lower than expected growth have wiped away that leeway, leaving her needing to find ways to restore the finances through raising money or cutting expenditure or both.
Local government leaders are among those most anxiously awaiting Wednesday’s statement, which they fear could reduce what they receive and tip more councils into bankruptcy, leaving them all straining more to fund key services for the most vulnerable such as social care.
Councillor Louise Gittins, chair of the Local Government Association, said that “without adequate investment now, we risk not being able to deliver crucial services that so many depend upon and our desire to help government fulfil its ambitions for the future are severely hindered”.
With ministers struggling to manage the economy, the latest Opinium poll for the Observer shows the damage being done to Labour’s reputation from its economic stewardship after eight months in power.
No single party leader is now trusted on the economy, Opinium found. However, Starmer (-32%) and Reeves (-38%) are the most distrusted, with the Reform leader, Nigel Farage, the Tory leader, Kemi Badenoch, and shadow chancellor, Mel Stride, all rated similarly on -22%, -23% and -24% respectively.
While most voters say they do not trust any party on economic issues, the Tories are now marginally more favoured than Labour to run the economy and “improve your financial situation”.
A Treasury spokesperson said: “Real wages are rising at the highest level in six months, but this government inherited the worst living standards growth since ONS [Office for National Statistics] records began.
“We are clear that getting more money in people’s pockets is the No 1 mission in our plan for change. Since the election, there have been three interest rate cuts, we have increased the national living wage by a record amount, the triple lock on pensions means that millions will see their state pension rise by up to £1,900 this parliament and working people’s payslips have been protected from high taxes.”
