Millions of UK households could be facing a loss of £356 per person next year, as Rachel Reeves grapples with budgetary challenges and the quest for economic growth in 2025. Despite potential enhancements to public services that might mitigate some effects, a new analysis suggests households are set for a significant financial blow.
For those in the higher income bracket, living standards could drop by 0.4 per cent, which translates to around £140, even after considering the benefits from public services. The economic outlook is tough, with the Bank of England predicting no GDP growth from October to December, while some economists voice concerns over a looming recession.
Sir Keir Starmer has emphasised his desire for people to experience the real-world advantages of economic growth, rather than just seeing improvements as a “line on a chart” representing GDP. Nonetheless, the Resolution Foundation think tank has indicated that the Government’s plans present a complex scenario for living standards.
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Interim chief executive of the think tank, Mike Brewer, commented that the “budget tax-rise gamble from the Chancellor is that, while people may not be better off in purely financial terms, they will feel better off if we can have better, less dysfunctional public services”. The Resolution Foundation’s analysis took into account both disposable income and the “benefits-in-kind” from public services.
Families with low-to-middle incomes are predicted to see a slight improvement, with a marginal 0.2 per cent increase in real living standards for those in the lower half of the income spectrum, reports GB News.
However, the poorest households are set to face unique challenges from escalating housing costs and council tax hikes, coupled with real-terms reductions in social security payments. The wealthiest households will benefit less from these changes, as they typically rely less on public services and don’t gain as much from minimum wage increases.
However, analysis suggests that disposable income is likely to decrease across most groups, with improvements in public services being crucial for any perceived benefits. Brewer added: “If we put a cash figure on the benefits-in-kinds from public services, then the 0.6 per cent real living standards fall for the richest tenth of households is equivalent to a cash hit of £356 per person next year.”
So, despite the Government’s new targets for rising disposable incomes in its plan for change, the living standards outlook for 2025 is hardly a cause for celebration: disposable income is likely to fall, and if households are to feel better off, then it will only be if they see the benefits from spending more on public services.
“Reeves faces significant challenges heading into 2025, with a looming Whitehall spending review that experts warn will be “difficult”. The Chancellor has ordered departments to find “efficiency savings” of five per cent of their budgets, with a detailed review of spending expected to be published in June.