The majority of people will be worse off in real terms this year despite the government’s “vast” support packages to cope with the cost of living crisis, the Institute for Fiscal Studies (IFS) has warned.
In an online presentation ahead of chancellor Kwasi Kwarteng’s “fiscal statement” on Friday, IFS researcher Xiaowei Xu said soaring inflation meant people across the income spectrum will see a hit to their living standards.
“In real terms we expect the median earner to be £500 worse off than they were last year, which is around a three per cent net cut in their income,” she said.
This figure was calculated on the basis of both Liz Truss’s energy price guarantee and expected reversal of national insurance tax rise, the IFS told The Independent.
Ms Xu added: “High earners – but not very higher earners – will be more than £1,000 worse off which would be a larger increase in percentage terms. Lower earners and those out of work will be more shielded from the rising cost of living, both in cash terms and as a share of income.
“Even after the government is spending vast amounts of money to protect households from the rising cost of living, most households would still see their living standards fall this year compared to last year.”
The Joseph Rowntree Foundation (JRF) also urged the chancellor to go beyond tax cuts and offer more support for those most in need – warning that the poorest looked set to be “left out in the cold” at the mini-budget on Friday.
New analysis from JRF found that low-income families on means-tested benefits face a gap of £450 between now and April just to keep up with predicted price rises.
“The current support package doesn’t yet give families the security of knowing they can afford the essentials, and the tax cuts mooted do little to help them either,” said Rebecca McDonald, JRF’s chief economist.
She added: “Hard-pressed families can’t afford to wait to see if the benefits of tax cuts trickle down. They need help now.”