‘Weak’ living standards outlook for middle income earners, thinktank warns
The outlook for living standards for middle-income earners is “weak” beyond this financial year, according to an annual report by a thinktank released ahead of the Labour government’s first budget.
The Resolution Foundation warned that a slowdown in pay growth across the board would start to bite by the time of Sir Keir Starmer’s first anniversary in office, arguing that the pace of salary increases would soon be overtaken by rising housing costs.
Its findings, released just weeks after Labour’s landslide election win, were based on forecasts by both the Bank of England and Office for Budget Responsibility.
It said that the impact would be felt most by the worse off – especially if the Treasury decides not to U-turn on planned Conservative cuts to benefits – as a greater proportion of their incomes is spent on things like rents and energy.
The foundation said that 400,000 more children risked coming under the poverty line over the parliament without intervention as the cost of living crisis pivots, in part due to interest rates remaining high to combat inflation.
A reason why rates are not coming down at a faster pace is due to wage growth being seen as an inflationary risk.
The Bank wants salary increases to ease while, ideally, the government does not because it exposes more people to financial difficulty.
It marks a worrisome challenge for the Labour administration because it comes at a time when it claims to have inherited a £22bn “black hole” in the public finances from the Conservatives.
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The government blamed this void for its early decision to scrap winter fuel payments for the 10 million pensioners not in receipt of benefits.
Both Sir Keir and his chancellor Rachel Reeves have warned of further hard choices at the budget, due on 30 October, with the prime minister admitting earlier this week that tougher times lay ahead.
He stated those with the broadest shoulders would have to bear the brunt of the looming tax rises. The Tories have responded by arguing the budget will be a Halloween horror for the middle classes.
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Labour has ruled out hikes to VAT, national insurance and Income tax.
The foundation’s Living Standards Outlook showed that incomes are expected to grow by 3% in 2024/25, but annual median income growth for non-pensioner households is forecast to tumble to 0.4% between 2024/25 and 2029/30.
This would leave annual average income growth over the whole parliament at 0.8% – or £1,400 per household.
The economists’ report suggested boosting real annual wage growth by one percentage point from 2025/26 onwards, to raise typical income growth for non-pensioner households to 8% by the end of the parliament – up from 5%.
It also said that scrapping the two-child limit on universal credit support and benefit cap, and raising the local housing allowance from 2025, could “lift 600,000 children out of poverty overnight” at a cost of £3.5bn.
The government has defied pressure from its own MPs for the two-child benefit cap to be dropped.
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A third proposal was to uprate working-age benefits in line with wages rather than prices from 2025.
The study said that would cost around £9bn a year by the end of the parliament but “would stabilise child poverty rates at a lower level than in the previous parliament”.
Economist Alex Clegg said: “Britain is currently experiencing a mini living standards recovery as inflation falls but wage rises remain high.
“But this isn’t set to last, with the majority of income growth projected over the parliament coming in this year alone.”
He added: “While the outlook for middle-income households is weak, it’s even worse for poor households, with 400,000 children at risk of falling below the poverty line.
“This troubling outlook highlights the need for the new government to beat the forecasts that they have inherited.”
Dame Judi Dench, Malala and Stanley Tucci are among another 100 famous names who have added their signatures to a letter urging Sir Keir Starmer to “end the UK’s complicity” in Gaza.
Sky News can exclusively reveal the Bond actress, Nobel Peace Prize winner and Conclave actor are among a host of public figures who have added their names to the letter.
At the end of May, Sky News revealed about 300 actors, bands, singers, activists and sportspeople signed the letter, organised by refugee charity Choose Love, calling on Sir Keir to suspend all UK arms sales and licences to Israel.
Dua Lipa, Benedict Cumberbatch and Gary Lineker were among the celebrities to also urge the PM to use all available means to ensure full humanitarian access and broker an immediate and permanent ceasefire.
Celebrities and activists also read out all the names of children killed in Gaza in front of parliament.
But three weeks later, they say nothing has changed.
Dua Lipa, Gary Lineker and Benedict Cumberbatch signed the letter in May. Pics: PA
Other new signatories include actors Florence Pugh and Russell Tovey, Dr Who star Ncuti Gatwa, singer Paolo Nutini, author Michael Rosen, musician Paul Weller, Little Mix members Leigh-Anne Pinnock and Jade Thirlwall, broadcaster Fearne Cotton, Game of Thrones actress Carice van Houten, Harry Potter actress Bonnie Wright and ex-England rugby captain Chris Robshaw.
The letter urges Sir Keir to “take immediate action to end the UK’s complicity in the horrors of Gaza”, and says children are starving “while food and medicine sit just minutes away”, in reference to Israel blocking aid into the territory.
It says 71,000 children under four are “acutely malnourished” and those who survive starvation “wake up to bombs falling on them”, with more than 15,000 children killed in the conflict so far.
Read more:
Israeli tanks kill 51 people waiting for aid in Gaza
Bodies of Israeli couple taken into Gaza by Hamas recovered
Ncuti Gatwa, who plays Dr Who, has signed the letter. Pic: Reuters
Actress Florence Pugh has also signed the letter. Pic: Reuters
Actor Russell Tovey is a signatory too. Pic: Reuters
“Violence stamped with UK inaction – flown with parts shipped from British factories to Israel – could be obliterating families in seconds,” the letter adds.
“You can’t call it ‘intolerable’, yet do nothing.
“Every moment this continues, is another moment children die on our watch.
“History is written in moments of moral clarity. This is one. The world is watching and history will not forget. The children of Gaza cannot wait another minute.
“Prime minister, what will you choose? Complicity in war crimes, or the courage to act?”
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What has Starmer said and done about Gaza?
In September, the UK suspended about 30 arms export licences to Israel, but government export licensing figures from May show the UK approved licences for £127.6m worth of military equipment from October to December 2024 – more than the total between 2020 and 2023.
Since the first letter was sent, Sir Keir has called Israel’s actions in Gaza – both the blockade of aid and strikes – “appalling and intolerable”.
Some of his own MPs are pressuring him to take further action against Israel and call the 20-month war – which started when Hamas killed 1,195 people in Israel and took 250 hostage – a genocide, but he has not used those words.
On 10 June, the UK, Australia, Canada, New Zealand and Norway sanctioned far-right Israeli ministers Itamar Ben-Gvir and Bezalel Smotrich over “repeated incitements of violence against Palestinian civilians”.
They are banned from entering the UK and are now subject to a freeze on UK assets and director disqualifications.
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Gaza crisis ‘acute’ and continuing
Last week, Sir Keir said more RAF jets, including Typhoons and air-to-air refuelers, were being sent to the Middle East after Israel and Iran attacked each other.
On Tuesday, Sir Keir told Sky News’ political editor Beth Rigby he is “worried about the impact” escalation between the two countries will have on Gaza.
Josie Naughton, co-founder and CEO of Choose Love, said: “Since we urged the government to end its complicity in the horrors of Gaza, more people have added their voice to our call. We cannot be silent while children are being killed and families are being starved.
“It took us 18 hours to read the 15,613 names of children known to be killed in Gaza. Every single one of them was someone’s whole universe. Every one of them deserved better.
“The situation is changing by the second, but until the UK government has halted all arms sales and licences to Israel, ensured that humanitarian aid can reach people starving inside Gaza and stopped the killing, they will not have done enough.
“History will remember how we acted in this moment. We beg Keir Starmer to end the UK’s complicity in these horrors.”
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A government spokesperson said: “We strongly oppose the expansion of military operations in Gaza and call on the Israeli government to cease its offensive and immediately allow for unfettered access to humanitarian aid.
“The denial of essential humanitarian assistance to the civilian population in Gaza is unacceptable and risks breaching international humanitarian law.”
The spokesperson added: “Last year, we suspended export licences to Israel for items used in military operations in Gaza and continue to refuse licences for military goods that could be used by Israel in the current conflict.
“We urge all parties to urgently agree a ceasefire agreement and work towards a permanent and sustainable peace.”
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