U.K. Living Standards Post Biggest Drop Since 1970s Oil Crisis
U.K. households are experiencing the biggest income shock since the 1970s oil crisis.
(Bloomberg) -- U.K. households are experiencing the biggest income shock since the 1970s oil crisis, and the pain is far from over as the government prepares to withdraw the support deployed to help the country through the coronavirus crisis.
The stark assessment from the Resolution Foundation intensifies the pressure on Chancellor of the Exchequer Rishi Sunak, with forecasters warning of mass job cuts this year unless more help is made available beyond October when subsidies supporting the incomes of over 12 million workers are due to end.
In a report published Tuesday, the think tank said real wages have fallen by 4.5% since the coronavirus crisis began, despite the wage support programs. That’s the most since 1975, when the Arab oil embargo sent inflation spriraling, and well above any year during and after the 2008-09 financial crisis.
The scale of the shock may fuel doubts over how quickly the economy can recover from its deepest recession in at least a century.
While Sunak is spending almost 200 billion pounds ($253 billion) to keep people in jobs and businesses afloat, the Office for Budget Responsibility reckons unemployment could hit 12% by year end if just one in seven furloughed workers becomes unemployed, and over 13% in early 2021 under a more pessimistic scenario.
Typical household incomes during the lockdown were no higher than in 2006-07, extending a bleak decade for living standards. Young people and lower-income households, who were hit hard after the financial crisis, are now most at risk from a second wave of unemployment because of their exposure to the retail, hospitality and leisure industries, the Resolution Foundation warned.
A “huge income shock” faces those forced to seek Universal Credit welfare payments, as a worker earning 20,000 pounds a year can expect to get less than 30% of their take-home pay if made unemployed. At the moment, a furloughed worker on the Job Retention Scheme gets over 80%.
A further blow could come next year if the government presses ahead with its plan to reverse the recent increase in the generosity of Universal Credit. That would cost more than 6 million households over 1,000 pounds a year, with the bottom half of the working-age population suffering an income fall of 4%.
“This initial phase of the crisis has shown us the importance of bold job support and a stronger social security safety net,” said Adam Corlett, senior economist at the Resolution Foundation. “The Government should keep both those lessons front of mind as it navigates the next phase of the crisis.”
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