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Britons facing 'more than a decade without real earnings growth'

Published 24/11/2016

Chancellor Philip Hammond delivers his Autumn Statement in the House of Commons
Chancellor Philip Hammond delivers his Autumn Statement in the House of Commons

British workers are facing the toughest squeeze on earnings in up to a century, a leading financial think tank has warned, after official forecasts for growth were sharply downgraded the wake of the Brexit vote.

The Institute for Fiscal Studies (IFS) said figures unveiled in Chancellor Philip Hammond's Autumn Statement on Wednesday indicated real wages will still not have returned to pre-crash levels by 2021.

"One cannot stress how dreadful that is - more than a decade without real average earnings growth," said IFS director Paul Johnson.

"We have certainly not seen a period remotely like it in the last 70 years and quite possibly the last hundred."

The findings are a blow for Mr Hammond and Theresa May - who has made helping "just about managing" families - the so-called "jams" - a keynote theme of her premiership.

Mr Johnson said the limited assistance announced by Mr Hammond - cutting the taper on universal credit - was far outweighed by benefits cuts already put in place by his predecessor George Osborne.

He warned the country was facing an "additional dollop of austerity" after the next general election in 2020 as the Government struggled to get the public finances back on track.

Ministers, however, insisted the IFS analysis did not give a "full picture" and that living standards were at their highest level ever.

In its latest forecasts, the independent Office for Budget Responsibility (OBR) predicted the vote for Brexit would wipe 2.4% off economic growth over the next five years while average earnings will rise by less than 5% over the same period.

Mr Johnson said i t meant earnings would now be 3.7% lower in 2021 than the OBR was forecasting at the time of Mr Osborne's last Budget in March and would still not have recovered to the level they were at the time of the financial crash in 2008.

Overall, national income in 2021 would be £30 billion lower than previously thought - the equivalent of £1,000 per house hold.

The IFS findings were echoed by the Resolution Foundation think tank which said that by 2020 earnings would be £830 a year than had been expected, putting the decade on course to be the weakest one for wage growth since the 1900s.

Despite some measures in the Autumn Statement to help hard-pressed households, it said that the Prime Minister's "rhetorical commitment to just managing families has not been delivered upon".

Conservative former minister Lord Willetts, executive chairman of the think-tank, said households would to face a "significant challenge" to living standards for years to come.

"In the months and years ahead there is going to have to be more help for low income working families," he told BBC Radio 4's The World at One.

Mr Johnson said that despite Mrs May's commitment, Mr Hammond had chosen to prioritise investment in the country's infrastructure aimed at raising long-term economic productivity over help for families in his statement.

"Given the choice between jam today in the form of more money in people's pockets and jam tomorrow in the form of potential economic returns from greater investment, he went for jam tomorrow," said Mr Johnson.

For Labour, shadow John McDonnell said the "lost decade for living standards" was a damning indictment of Conservative economic policy over the last six years.

"The so-called 'long-term economic plan' has meant long-term decline in living standards for working people even as the super-rich and the big corporations are given large tax giveaways," he said.

However Treasury Chief Secretary David Gauke said the IFS analysis had failed to take into account Government tax cuts which meant working people keep more of that they earn.

"Since 2010 we've stabilised the economy and acted to help families struggling to get by. We've cut income tax for millions, introduced the national living wage and raised the state pension," he said.

"Living standards are now at their highest ever level, and the OBR forecast them to be higher still by 2021."

Earlier Mr Hammond denied borrowing was "out of control" after the OBR predicted borrowing was set to rise by £122 billion over the next five years with almost half the increase due to Brexit

"It's not out of control, it's larger than we would like it to be," he told the BBC Radio 4 Today programme.

"The OBR itself would say that there is a wide range of uncertainty around its central forecast. It isn't only the uncertainty around Brexit negotiations. There are many factors which are causing uncertainty in economic forecasting at the moment."

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