'Painful' years ahead, think tanks warn, as living standards set to fall

People are facing a "painful" and "depressing" few years ahead, economic think tanks have warned, after forecasts showed growth in living standards grinding almost to a halt.

Typical working-age households would see their disposable income fall by £1,050, or 3%, between now and 2029, according to the Resolution Foundation, while the Institute for Fiscal Studies (IFS) said the current decade would be the worst for household income growth on record.

Chancellor John Healey said his Budget offered "breathing space", but said the government could "never remove completely" cost of living pressures.

The UK's official forecaster said its latest economic forecast painted a "pretty grim picture".

The Office for Budget Responsibility (OBR), blamed the difficult financial situation facing the UK on higher borrowing costs and inflation caused by the US-Iran war.

In response to rising energy prices, Healey has announced measures, including a £100 support payment, aimed at easing pressure on household finances.

But that would not be enough to offset the impact of higher energy bills, the Resolution Foundation said.

"This parliament is increasingly looking like one of two halves," said the think tank's chief executive, Ruth Curtice.

"The first half has been marked by rising living standards, solid economic growth and extra funding for public services," she said.

However, the second half of the parliament would be "tough going", she said.

IFS director Helen Miller said there would also be growing pressure on the government's spending plans over the parliament.

"Spending plans look extremely tight. They don't look to me like plans that this government would want to deliver," she said.

"Whether or not they are delivered matters because the spending plans underpin the plan to bring down borrowing," she added.

Miller said she was left with the impression that Healey was hoping the economy would improve to take the pressure off those spending decisions.

Healey, speaking on the BBC's Today Programme, said "economic storms", including the Iran war and Russia's invasion of Ukraine, were affecting countries around the world and the government was seeking to help where it could.

He said energy bill help would create "breathing space" for most households.

Around 20 million households are set to receive the £100 payment based on which council tax band they are in.

But Conservative shadow chancellor Andrew Griffith said the Budget had left the public finances "more fragile" as Healey had reduced the "headroom" of the amount of buffer the country has between what it takes in revenues and what it spends.

Liberal Democrat leader Ed Davey said the £100 energy payment would be identified as the best item in the Budget for many people, but said that it was "not good enough" when you considered the "stealth tax rises" that were taking money out of people's pay packets.