Average living standards could fall for all UK families by 2030, with those on the lowest incomes hit twice as hard as middle and high-earners, a new forecast suggests.
In analysis published days before chancellor Rachel Reeves is set to announce new spending cuts in her spring statement, the Joseph Rowntree Foundation (JRF) issued a stark new warning to the Labour government.
While much discussion has focused on whether Ms Reeves will meet her “iron-clad” fiscal rules after rising borrowing costs wiped out the £10bn of headroom in her October budget, the JRF warned a preoccupation with the public purse risks a deterioration in the finances of ordinary families going under the radar.
As a result, the charity believes Sir Keir Starmer could be on course to miss his fundamental milestone – just four months after it was announced – of seeing living standards rise during this parliament, a target which the JRF said would have been met by every previous government since comparable records began in 1955.
Instead, this past year may prove to be the high point for living standards this parliament, according to the charity – whose forecasts rest on the assumption that the Office for Budget Responsibility will upgrade its own forecasts on Wednesday in line with those of the Bank of England and other major forecasters.
If so, the JRF estimates the average family will be £1,400 worse off by 2030 than they are today – marking a 3 per cent fall in their disposable income after housing costs.
The lowest income families will be £900 a year worse off, according to the JRF’s forecasts – amounting to a 6 per cent fall in their disposable income.
This deterioration in living standards also comes after the “twin blow” of the Covid pandemic and the resulting inflationary crisis, from which the charity warns average disposable incomes have still not recovered – remaining £400 lower in April 2025 than in 2020.
Alfie Stirling, director of insight and policy at JRF, told The Guardian that further cuts were not the way to reverse falling living standards – arguing instead that Ms Reeves should consider raising taxes 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,” said Mr Stirling.
“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.”
But in an interview with the BBC on Saturday, Ms Reeves warned that “we can’t tax and spend our way to higher living standards and better public services”, as the chancellor faces pressure to fill a hole of around £20bn in the public finances.
New forecasts from the Office for Budget Responsibility – made after the Bank of England reduced its forecasts for growth this year – suggested public sector net borrowing hit £10.7bn in February, £4.2 billion more than previously forecast, as global pressures increase the cost of government borrowing.
And in new forecasts on Wednesday, the OBR is expected to halve the expected growth rate for this year from 2 per cent to around 1 per cent.
In her statement next week, Ms Reeves is expected to argue that spending cuts are necessary to avoid a similar fallout to that caused by Liz Truss’s disastrous 2022 mini-Budget.
While the defence budget has already been boosted by the government’s controversial decision to slash spending on aid in half, sweeping cuts to welfare amounting to more than £5bn were also announced this week.
Government ministries have been asked to go through their spending line by line, raising the prospect of more severe cuts for unprotected departments such as justice, the Home Office and local government, whose budgets are already straining after a decade of austerity.
A spokesperson for HM Treasury told The Independent: “Real wages are rising at the highest level in six months, but this government inherited the worst living standards growth since ONS records began.
“We are clear that getting more money in people’s pockets is the number one mission in our Plan for Change. Since the general 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.”
