Economy warning: UK living standards to flatline as Britons face £180billion tax squeeze

Budget forecasts paint 'grim picture' for British households as living standards set to flatline Living standards are forecast to record their weakest decade of growth since the 1950s Sign up to the Money Newsletter I agree to receive updates and information about my account, the GB News Community, and related products and services from GB News. Email address Sign up By signing up you agree to the Terms and Conditions and Privacy Policy and Community Rules.

Thank you for signing up! See the latest from GB News here . Choose GB News on Google - add us as a preferred source Choose GB News Support GB News Champion free speech and independent journalism while unlocking exclusive benefits. Support us British households are forecast to end the decade barely better off than they were before the pandemic. The latest Budget forecasts paint a "pretty grim picture" for living standards across the country.

The Office for Budget Responsibility published its assessment alongside Chancellor John Healey's Budget on Wednesday. It shows that real household disposable income per person, a key measure of living standards after taxes and inflation, is expected to be only one to two per cent higher than before the pandemic by the end of the decade. The watchdog also cut its UK economic growth forecast for 2027 from 1.6 per cent to one per cent. It said higher energy prices linked to the Iran war were a major reason for the downgrade.

David Miles, a senior economist at the OBR, described the outlook as "a pretty grim picture". He said there had been "virtually no growth in per person real household disposable income" since Covid, which was "pretty unusual in the history of the UK". Across the 2020s, living standards are now expected to grow by an average of just 0.1 per cent a year. That would be the weakest decade recorded since the 1950s. Before the 2008 financial crisis, annual growth of around two per cent was considered normal.

Since Covid there had been "virtually no growth in per person real household disposable income" | GETTY The pressure on household finances is expected to continue in the coming years. The OBR forecasts that real household incomes will fall in the near term, while real earnings, which account for inflation, will not grow in either 2027 or 2028. Real wage growth is expected to recover to just 0.5 per cent by 2030 as businesses focus on rebuilding their profit margins.

Mr Miles said: "It's been a dismal period in British economic history," identifying soaring energy costs as a major factor behind the weak outlook. Higher taxes are adding to the squeeze. The OBR expects the tax burden to reach a post-war record of 38.6 per cent of GDP, up from 33 per cent before the pandemic. That increase is equivalent to an additional tax burden of approximately £180billion in today's money. One of the main factors is the continued freeze on income tax thresholds.

The policy was introduced by Rishi Sunak in 2021, extended by Sir Jeremy Hunt and has now been prolonged further by Labour. The standard Personal Allowance is set to remain at £12,570. The OBR estimates it would have reached £18,320 by 2031 if it had increased in line with inflation. By the same point, six million people will have been dragged into paying the 40 or 45 pence rate of tax, the watchdog said. The higher-rate threshold would have stood at £73,330 rather than just over £50,000.

Britain's welfare bill is also spiralling beyond expectations. The OBR now forecasts welfare spending will reach £413.1billion by the end of the decade, nearly £7billion higher than its March estimate of £406.2billion. That figure already accounts for more than £1 in every £4 of public spending. Spending on sickness and disability benefits alone is projected to climb by a third, reaching £120.2billion by 2030-31. Personal Independence Payment, which supports claimants with daily living costs, is expected to nearly double from £31.6billion in 2026-27 to £47billion by 2031.

OBR officials said their projections assumed the pace of new claims would slow from the "very significant" increases seen during lockdown. However, they cautioned that if claims continued at that rate, welfare spending would be £25billion a year higher by the start of the next parliament. The OBR now forecasts welfare spending will reach £413.1billion by the end of the decade | GETTY The Resolution Foundation, often regarded as Labour's favoured think tank, offered a withering assessment.

Chief executive Ruth Curtice said the forecasts reflected "what is set to be a truly terrible decade for living standards". The foundation noted that the 2020s were now expected to bring twice the inflation of a normal decade, with prices rising by 42 per cent compared with 22 per cent had inflation held at the two per cent target. Helen Miller, director of the Institute for Fiscal Studies, dismissed the chancellor's support package as "relatively small", criticising its reliance on an "outdated" council tax system to distribute one-off £100 payments rather than directing help towards those on the lowest incomes.

Rain Newton-Smith, head of the Confederation of British Industry, said the Budget "lacks the bold moves that would have made it easier for firms to invest, hire and grow". The foundation noted that the 2020s were now expected to bring twice the inflation of a normal decade | GETTY OBR chairman Jonathan Haskel said unprotected departments faced implied cuts of 2.6 per cent in each of the final three years of the forecast. Paul Johnson, former head of the IFS, was blunt about the likelihood of a Labour government delivering such reductions: "Pull the other one.

It's got bells on." Conservative leader Kemi Badenoch summed up the opposition's verdict: "We are overspent, over-borrowed, overtaxed and drowning in an out-of-control welfare system." Ion Jauregui, analyst at ActivTrades, said financial markets had shown a relatively muted response to the Budget, suggesting investors were broadly comfortable with the Chancellor's plans but remained cautious. He said: "Overall, there has been a relatively low reaction to the Budget, suggesting that investors are fairly happy with the outcome but are not totally convinced."

Mr Jauregui explained that gilt yields are influenced by inflation, economic growth, Bank of England decisions and movements across global bond markets. Falling yields can indicate greater confidence in the Government's handling of the public finances and could reduce its future borrowing costs. However, they may also reflect weaker expectations for economic growth. Rising yields can signal concerns about inflation, debt or additional borrowing.

Mr Jauregui warned: "With 10-year yields around 5.35%, there is not much room for error. Higher borrowing costs could therefore affect business investment and economic growth." Changes in gilt yields can eventually affect household finances, although the impact is not immediate. He said: "An increase in gilt yields tends to push swap rates higher, making fixed-rate mortgages more expensive. It will also increase government borrowing costs over time, putting pressure on public finances and potentially leading to more difficult decisions on public spending."

However, he stressed that rising yields would not automatically result in higher taxes. Lower yields could eventually support cheaper mortgages and reduce pressure on the Treasury, although any relief may take time while inflation remains elevated. Our Standards: The GB News Editorial Charter Money Landlords face £400 hit under Labour's £1billion property tax raid Money DWP Cold Weather Payments start this weekend - check if you're eligible Money Poundland on brink of collapse as 12,000 jobs and 600 stores put at risk Money Autumn Budget 2026 winners and losers: From pensioners and workers to savers and landlords Money How much will John Healey's Budget cost YOU? - Use our free GB News calculator NOW Money Savings tax raid to hit 3.8 million Britons as Budget shake-up could push bills up by £603 Money Britain's benefits bill forecast to hit £431billion Money Lifetime ISA to be replaced as John Healey makes major change to 'unfair' withdrawal penalty Money John Healey raises tax-free allowance to protect nearly one million pensioners from income tax Money John Healey announces £10million alcohol duty relief in boost for British high streets Money Millions of households to receive £100 energy payment - are you eligible?

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