Wages to take a £1200 hit from Covid warns think tank

AVERAGE pay will be £1200 a year lower by 2025, a leading think tank warned today.

After yesterday’s Spending Review from Chancellor Rishi Sunak and some brutal analysis from the OBR on the future direction of the economy, the Resolution Foundation warned that the Covid crisis is prolonging Britain’s 15-year living standards squeeze and “leaves austerity in place for many public services”.

A report called Here Today, Gone Tomorrow claims that by 2025 pay will be £1200 lower than forecast pre-pandemic.

It also warns that six million households will lose £1000 in reduced Universal Credit next April, just as unemployment is expected to be at its highest.

Torsten Bell, chief executive of the Resolution Foundation, said:

“The pandemic is just the latest of three ‘once in a lifetime’ economic shocks the UK experienced in a little over a decade, following the financial crisis and Brexit. The result is an unprecedented 15-year living standards squeeze.

“Yesterday, the Chancellor chose to ramp up his Covid spending to £335 billion. But he also quietly dialled down his spending plans beyond the crisis. For all the talk of ending austerity, its legacy will continue for many public services throughout the parliament.”

Taxes are sure to rise, he added.

“While the priority now is to support the economy, the permanent damage to the public finances mean taxes will rise in future. But which taxes those will be, like which Brexit we can expect, are questions the Chancellor left for another day.”

After a period of optimism following positive news on a vaccine, expert analysis on the state of the economy has lately been downbeat. Bankers and others in the City are concerned that the real pain from Covid is just around the corner.

Dan Lane of Freetrade says taxes are “sure to rise next year”.

“CGT and income tax could come closer together, with a knife taken to annual allowances. That’s likely to hit investors but the amount it could realistically add to the country’s finances won’t be enough,” he said.

“That could mean the top end of pension tax relief gets the chop instead, or as well. In any case, measures will probably start with higher earners - the country will have little quarrel if the Chancellor starts there. But, given the record slump we’ve seen this year, we should all be prepared to batten down the hatches in 2021.”