UK households face projected drop in disposable income as think tanks warn of stagnant living standards
Economic forecasts suggest UK working-age households could see disposable income fall by about 3% by 2029, prompting criticism from think tanks that the current budget does not adequately address rising costs.
Economic think tanks warned that UK households are likely to experience a decline in living standards over the next few years. The Resolution Foundation projected that typical working-age households could see disposable income fall by £1,050, roughly 3%, between now and 2029. The Institute for Fiscal Studies described the current decade as the worst on record for household income growth.
Chancellor John Healey said the Budget provides "breathing space" but acknowledged that the government cannot completely eliminate cost-of-living pressures. He also announced a £100 support payment aimed at easing household finances amid rising energy costs.
The Office for Budget Responsibility (OBR) described its latest economic outlook as a "pretty grim picture", citing higher borrowing costs and inflation linked to the US-Iran conflict. The OBR forecast GDP growth slowing to 1% in 2027 and raised its 2027 inflation projection to 3.4%, while noting uncertainty around future inflation trends.
Ruth Curtice, chief executive of the Resolution Foundation, said the parliament appears divided, with the first half marked by rising living standards and the second half facing tougher conditions. She criticised the Budget as a "scattergun" approach that does not sufficiently tackle the challenges.
The think tank noted that, after taxes, benefits and housing costs, non-pensioner household incomes are expected to increase by only £600 over the current parliamentary term, a modest gain compared with the first five years. Even with government support, households are projected to pay higher energy bills than during the 2022 crisis, and the Foundation argued that assistance should be more targeted at the poorest families.
Helen Miller, director at the Institute for Fiscal Studies, warned that government spending plans appear extremely tight and may hinder efforts to reduce borrowing. She suggested that Chancellor Healey seems to be relying on economic improvement to ease fiscal pressures.
Healey, speaking on the BBC's Today programme, linked global economic turbulence, including the Iran war and Russia's invasion of Ukraine, to the domestic cost-of-living challenges and said the government is working to provide help where possible.