Continuing squeeze on “just about managing” households could lead to sustained rise in inequality, report warns

Fortunes for the households dubbed "just about managing" by Theresa May don't look set to improve in

Fortunes for the households dubbed "just about managing" by Theresa May don't look set to improve in the coming years, the Resolution Foundation has warned. Picture: Sonya Duncan - Credit: Sonya Duncan

Families on the lower end of the pay spectrum are facing three years of stagnant living standards – which could lead to the first sustained rise in inequality in 30 years, a new report has warned.

Think tank the Resolution Foundation said average incomes are expected to rise over the years before the next general election, scheduled for 2022, following real-terms falls.

But eight million working households on low and middle incomes still face flat or falling living standards between 2017/18 and 2019/20.

The report blames the rollout of £14bn in welfare cuts, which will more than offset rises in the minimum wage and predicted pay increases for families receiving in-work benefits.

The people described by prime minister Theresa May as 'just about managing' look set for a rise in incomes of just 2% – the equivalent of £300 – over the decade to 2020, compared to 10% (£3,100) for higher-income working-age households, said the Resolution Foundation.

On some measures, levels of income inequality are projected to reach record highs by the early 2020s, having fallen in the immediate aftermath of the financial crisis.

Resolution Foundation director Torsten Bell said: 'This parliament risks seeing the first sustained rise in income inequality since the 1980s.

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'But the story this time around is less about the rich soaring further away, and more about poorer families falling further behind as they bear the brunt of £14 billion of welfare cuts.

'It is policy decisions, not capitalism, that look set to drive living standards of low and middle income families down and inequality up in the years ahead. Recent years of economic anxiety and political division should have taught us that this is the last thing Britain needs.'

The Foundation's calculations are based on the latest economic forecasts from the government's Office for Budget Responsibility along with policy impact assessments.

It forecast that the pace of growth in median incomes will peak at 1.3% by 2022 – well below the 2.1% norm enjoyed before the financial crash of 2008.

But the think tank said their projections could by fundamentally altered by changes such as the reversal of planned benefit cuts, funded by higher income taxes, a return to pre-crisis levels of pay growth, and an easing of pressures from private rents.