'Households’ spending power to be slashed by £3,000'

Households will see their spending power cut by an average of £3,000 by the end of next year unless the new government acts to counter the biggest drop in living standards in at least a century, research has indicated.

Adding to Resolution Foundation thinktank said soaring energy bills would cut household incomes by 10 per cent and push an extra three million people into poverty.

The thinktank said the outlook for living standards was “shocking” and “terrifying”, noting that without beefed-up support from the state, the drop in the typical household’s income would be twice as severe as that in the global financial crisis of the late 2000s and worse than the eight per cent drop that followed the oil price shock of the mid-1970s.

With prices rising faster than wages, the Resolution Foundation said inflation-adjusted average incomes would continue falling until at least the middle of next year – taking real earnings back to their levels of 2003. Living standards were on course to drop by five per cent in the current 2022-23 financial year and by a further six percent in 2023-24 – a two-year decline unprecedented even during the hardship suffered during the second world war.

Inflation is currently at a 40-year high of 10.1 per cent but the Bank of England expects it to rise to 13 per cent in October. The Resolution Foundation said that these estimates already include the government’s existing £30 billion package of support announced in March.

Resolution Foundation researcher Lalitha Try said that no responsible government could accept such an outlook, so radical policy action is required to address it.

“We are going to need an energy support package worth ten of billions of pounds, coupled with increasing benefits next year by October’s inflation rate,” The Guardian quoted Try as saying.

"The new prime minister also needs to improve Britain's longer-term outlook, which can only be achieved by a new economic strategy that delivers higher productivity and strong growth," Try added.