Workers face worst decade for pay in 70 years as growth in real wages stalls

Britons face more than a decade of lost wage growth and will be earning no more by 2021 than they were in 2008 as the workforce endures the worst period for pay in at least 70 years, a think-tank has warned.

“One cannot stress enough how dreadful that is – more than a decade without real earnings growth,” said Paul Johnson, head of the Institute for Fiscal Studies, in his analysis of the latest official economic forecasts from the Office for Budget Responsibility.

Real wages in the UK were hit badly after the financial crisis and the OBR’s forecasts suggest the outlook has darkened again since the Brexit vote.

Average earnings fell 9 per cent between 2008 and 2013 as wages failed to keep pace with inflation. Before the Brexit vote, the OBR had been expecting slow earnings growth over the next few years, with average wages finally returning to their 2008 level by 2020.

But the OBR believes the vote for Brexit will hurt productivity and wage growth, while the drop in sterling that followed the vote will push up inflation. As a result, it now forecasts that real wage growth will stall next year and even by 2021 average earnings will still be below their 2008 level.

“Half of the wage growth projected for the next five years back in March is not now projected to happen,” Mr Johnson said of the OBR forecasts.

The weaker outlook for real wages, combined with looming benefit cuts, are predicted to squeeze living standards. Separate analysis of the OBR figures by the Resolution Foundation think-tank estimated that average real incomes were forecast to grow just 0.2 per cent a year between 2015 and 2020. That is an even slower pace than the 0.5 per cent annual growth between 2010 and 2014.

The income squeeze that followed the financial crisis was fairly evenly shared across the income distribution, with both poorer and richer households experiencing roughly the same rate of income growth. This was because richer households were hit by falling earnings while poorer households suffered from the impact of welfare cuts.

However, the pain in the next few years is likely to be concentrated heavily on lower-income families. Although richer households are set to experience lacklustre pay growth, means-tested benefits will be cut in real terms, meaning poorer households face a much sharper drop in incomes.