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Squeezed piggy bank
February 22 2018

Incomes will start rising next year for all but the JAMs

Emily Perryman News, Personal Finance News incomes, just about managing, living standards, Resolution Foundation, Torsten Bell

FAMILY incomes are expected to start slowly rising again next year, but those “just about managing” (JAMs) could face three years of stagnating living standards, research suggests.

The Resolution Foundation’s annual living standards outlook found that the post-EU referendum period of high inflation means typical household incomes are projected to have fallen marginally this financial year.

This would make it the worst year for income growth since 2011-12, and the third worst year in the last 25 years.

But with inflationary pressures easing and some signs of pay growth rising, the Resolution Foundation forecasts that median incomes will start to rise again in the next financial year (2018-19) and the remainder of this parliament.

The pace of growth is likely to be sluggish, peaking at 1.3 per cent a year by the end of this parliament. This is well below the 2.1 per cent average rate of income growth households enjoyed before the financial crisis.

Read more: Household finances worsen in February

The foundation warned that JAMs – families on low and middle incomes – risk missing out on any growth in the coming years. It expects three years of flat or falling living standards for JAMs between 2017-18 and 2019-20.

This would mean an income rise of just £300 (or two per cent) over the decade to 2020, compared to a £3,100 rise (10 per cent) for higher income working age households.

Big cuts to working age benefits lie behind the poor outlook for low and middle income families, the report said.

Although higher income households will avoid income stagnation, the outlook is still relatively weak.

Rate rises over the next few years are expected to dampen disposable income growth for home owners, marking a reversal of the big living standards boost that low interest rates have provided for households since the crisis.

Read more: British consumers feel the pinch as household budgets squeezed

The report said current economic forecasts might be beaten if benefit cuts are reversed through higher income taxes, the jobs boom is reignited and rent pressures ease.

Torsten Bell, director of the Resolution Foundation, said this parliament risks seeing the first sustained rise in income inequality since the 1980s, with poorer families falling further behind as they bear the brunt of £14bn of welfare cuts.

“Lots of factors lie behind projections of a parliament of weak income growth, many of which are beyond the government’s immediate control,” he said. “But it is policy decisions, not capitalism, that look set to drive living standards of low and middle income families down and inequality up in the years ahead. Recent years of economic anxiety and political division should have taught us that this is the last thing Britain needs.”

Read more: Household debt rises by seven per cent

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