Resetting policy in the Autumn Statement could resolve this dismal outlook for living standards.
A tough economic inheritance of weaker wage growth, higher inflation and £12bn of planned social security cuts mean that the poorest half of households face flat or falling incomes over the parliament – unless the new Chancellor takes action in his Autumn Statement.
This is according to a new report published today by the Resolution Foundation.
Under New Management includes the first comprehensive assessment of the outlook for living standards that Theresa May’s new government has inherited.
It finds that the return to strong shared income growth enjoyed in recent years – led by surging employment and historically low inflation – is unlikely to be repeated in the coming years. The UK’s chronic productivity growth means that a return to widespread wage-led income growth is unlikely, despite large and welcome increases in the minimum wage.
Using the average outlook of independent economic forecasts, the Foundation finds that lower wage growth and higher inflation could reduce typical earnings by around £1,000 a year by 2020, relative to pre-referendum projections. Such forecasts carry huge uncertainty however, with much depending on the manner in which the UK exits the EU, and the labour market response to that process.
This already challenging outlook for living standards will be worsened further still by the £12bn social security cuts scheduled for this parliament, which will bear down most heavily on low and middle income working families.
The report shows that gains from the National Living Wage, income tax cuts and the offer of 30 hours free childcare do not come close to offsetting significant income losses from welfare cuts, with a net average takeaway of £500 (or 3 per cent of income) for families across the poorest third of households when all cuts are fully in place.
Together, the economic inheritance of the new government means that the poorest half of households are set to experience flat or falling living standards over the remainder of the parliament, unless action is taken. Income growth for higher income households is positive, but at less than 0.5 per cent a year is still weak by historic standards.
The Foundation says that the future of Britain’s trading relationships and wider productivity growth will be key to boosting living standards in the long run. But with the process of delivering Brexit likely to take at least until the end of the parliament, it notes that the Chancellor has the chance to make a more immediate impact on the living standards of ‘just managing families’ by revisiting some key policies in his upcoming Autumn Statement.
The report highlights four key welfare reforms that will bear down most heavily on living standards including:
• Cuts to work allowances in Universal Credit (UC). Reductions in the amount families can earn before their benefits are tapered away reduces incomes for working families significantly and weakens incentives to work, saving almost £3bn by 2020. The measure will reduce incomes in the poorest half by an average of 0.8 per cent when fully rolled out. The losses vary from family to family – a working single parent could lose as much as £2,800 from this measure alone.
• Four-year freeze in working age benefits. This freeze was expected to save £3.6bn by 2020 when first announced in Summer Budget 2015. However, the outlook for higher inflation means it is now expected to save £4.6bn, and reduce incomes in the poorest half by an average of 1 per cent.
• Removing the family element in UC. A straight £545 cut to all new families in the benefit system, saving around £0.6bn in 2020.
• Two-child policy. Limiting in-work support to two children and removing the family element of UC to all families will save £1.6bn by 2020.
With recent Resolution Foundation analysis showing that the Treasury is likely to face an £84bn borrowing black hole in his Autumn Statement, the Chancellor clearly faces difficult trade-offs between fiscal credibility and revisiting such significant benefit cuts.
However, the Foundation says that boosting work allowances in UC – at a cost of around £3bn – offers the most targeted way to support just managing families by boosting their incomes and restoring their incentives to find work. Support is particularly needed to boost the work incentives of single parents and second earners in couples.
Action to soften the impact of the four-year freeze – for example by increasing benefits in line with inflation next year – would help families in and out of work as it affects all working age recipients. It will also compensate for the fact that inflation is now forecast to be higher than when the policy was first announced.
Extra revenues to fund these policy changes could come from abandoning further cuts in corporation tax, saving £2bn, and scrapping above inflation increases in the personal tax allowance and higher rate threshold to save a further £2bn. With four-fifths of the gains from these income tax cuts going to the richest half of households – and the UK’s five million lowest paid workers seeing no benefit at all – the Foundation argues that there are far more cost-effective ways to support just managing families.
David Finch, Senior Economic Analyst at the Resolution Foundation, said:
“The Prime Minister has rightly identified just managing families as a key priority for her new government. The first big test of this rhetoric comes in just a few weeks’ time when the Chancellor sets out the new government’s economic direction of travel in his Autumn Statement.
“The Chancellor inherits a tough legacy on living standards. The combination of long-term productivity failings, higher inflation, lower than expected wage growth and more immediate welfare cuts mean that millions of low and middle income households could face a parliament of flat or falling living standards.
“While making a success of Brexit goes well beyond the scope of the Autumn Statement, there is still plenty the Chancellor can do to make his mark on living standards. And by resetting fiscal policy he has created some crucial spending leeway that could be used to raise investment and boost household incomes.
“Reversing the damaging cuts to work allowances will boost incomes and increase work incentives, with women in particular benefiting from the extra returns to work. As millions of working families are set to move onto Universal Credit over the course of the parliament, this offers the best route to boosting the incomes and work incentives of just managing families.
“A new government gives the new Chancellor an opportunity to look ahead at the worrying prospect for just managing families’ living standards and do something about it by delivering a significant boost to living standards over the parliament.”
A Good Look At How Homes Will Become More Energy Efficient Soon
Everyone always talks about ways they can save energy at home, but the tactics are old school. They’re only tweaking the way they do things at the moment. Sealing holes in your home isn’t exactly the next scientific breakthrough we’ve been waiting for.
There is some good news because technology is progressing quickly. Some tactics might not be brand new, but they’re becoming more popular. Here are a few things you should expect to see in homes all around the country within a few years.
1. The Rise Of Smart Windows
When you look at a window right now it’s just a pane of glass. In the future they’ll be controlled by microprocessors and sensors. They’ll change depending on the specific weather conditions directly outside.
If the sun disappears the shade will automatically adjust to let in more light. The exact opposite will happen when it’s sunny. These energy efficient windows will save everyone a huge amount of money.
2. A Better Way To Cool Roofs
If you wanted to cool a roof down today you would coat it with a material full of specialized pigments. This would allow roofs to deflect the sun and they’d absorb less heat in the process too.
Soon we’ll see the same thing being done, but it will be four times more effective. Roofs will never get too hot again. Anyone with a large roof is going to see a sharp decrease in their energy bills.
3. Low-E Windows Taking Over
It’s a mystery why these aren’t already extremely popular, but things are starting to change. Read low-E window replacement reviews and you’ll see everyone loves them because they’re extremely effective.
They’ll keep heat outside in summer or inside in winter. People don’t even have to buy new windows to enjoy the technology. All they’ll need is a low-E film to place over their current ones.
4. Magnets Will Cool Fridges
Refrigerators haven’t changed much in a very long time. They’re still using a vapor compression process that wastes energy while harming the environment. It won’t be long until they’ll be cooled using magnets instead.
The magnetocaloric effect is going to revolutionize cold food storage. The fluid these fridges are going to use will be water-based, which means the environment can rest easy and energy bills will drop.
5. Improving Our Current LEDs
Everyone who spent a lot of money on energy must have been very happy when LEDs became mainstream. Incandescent light bulbs belong in museums today because the new tech cut costs by up to 85 percent.
That doesn’t mean someone isn’t always trying to improve on an already great invention. The amount of lumens LEDs produce per watt isn’t great, but we’ve already found a way to increase it by 25 percent.
Maybe Homes Will Look Different Too
Do you think we’ll come up with new styles of homes that will take off? Surely it’s not out of the question. Everything inside homes seems to be changing for the better with each passing year. It’s going to continue doing so thanks to amazing inventors.
ShutterStock – Stock photo ID: 613912244
IEMA Urge Government’s Industrial Strategy Skills Overhaul To Adopt A “Long View Approach”
IEMA, in response to the launch of the Government’s Industrial Strategy Green Paper, have welcomed the focus on technical skills and education to boost “competence and capability” of tomorrow’s workforce.
Policy experts at the world’s leading professional association of Environment and Sustainability professionals has today welcomed Prime Minister Teresa May’s confirmation that an overhaul of technical education and skills will form a central part of the Plan for Britain – but warns the strategy must be one for the long term.
Martin Baxter, Chief Policy Advisor at IEMA said this morning that the approach and predicted investment in building a stronger technical skills portfolio to boost the UK’s productivity and economic resilience is positive, and presents an opportunity to drive the UK’s skills profile and commitment to sustainability outside of the EU.
Commenting on the launch of the Government’s Industrial Strategy Green Paper, Baxter said today:
“Government must use the Industrial Strategy as an opportunity to accelerate the UK’s transition to a low-carbon, resource efficient economy – one that is flexible and agile and which gives a progressive outlook for the UK’s future outside the EU.
We welcome the focus on skills and education, as it is vital that tomorrow’s workforce has the competence and capability to innovate and compete globally in high-value manufacturing and leading technology.
There is a real opportunity with the Industrial Strategy, and forthcoming 25 year Environment Plan and Carbon Emissions Reduction Plan, to set long-term economic and environmental outcomes which set the conditions to unlock investment, enhance natural capital and provide employment and export opportunities for UK business.
We will ensure that the Environment and Sustainability profession makes a positive contribution in responding to the Green Paper.”