British households are set to experience stagnant or declining incomes in 2024, with Chancellor Rachel Reeves banking on improved public services to boost perceptions of wellbeing, according to the Resolution Foundation.
The think tank introduced a new measure of “real living standards,” combining disposable incomes with the in-kind benefits derived from public services.
The poorest 10% of working-age individuals are expected to see a 2% dip in disposable income but could gain £28 overall from enhanced public services.
Meanwhile, higher earners are projected to face a 0.4% drop in living standards, equating to a £140 loss when public service improvements are factored in.
“Tax-Rise Gamble” to Fund Public Services
Mike Brewer, interim CEO of the Resolution Foundation, described the Chancellor’s strategy as a “budget tax-rise gamble.”
He noted that while households might not see direct financial gains, they could feel better off if public services become more effective and less dysfunctional.
The poorest households are bearing the brunt of rising housing costs, council tax increases, and real-terms reductions in social security.
Conversely, wealthier households—less reliant on public services—gain little from minimum wage rises and face proportionately larger reductions in real living standards.
Brewer emphasised, “If we monetise the benefits of public services, the richest 10% of households will face a real living standards fall of 0.6%, equivalent to a £356 per person cash hit in 2024.”
He also highlighted that the government’s targets for disposable income growth remain far from realisation, with living standards likely to decline further by 2025 unless public service improvements bridge the gap.
Challenging Economic Outlook for 2025
The Institute for Fiscal Studies (IFS) echoed concerns, warning of a tough economic landscape for Chancellor Reeves as growth, inflation, and spending pressures mount ahead of the spring review.
Carl Emmerson, Deputy Director of the IFS, commended Reeves’s investment focus, which could yield long-term benefits but noted that missed growth targets would pose significant challenges.
The economy’s contraction by 0.1% in October—marking two consecutive months of decline—has fuelled fears of recession. The Bank of England projects zero GDP growth for Q4 2024.
While the Office for Budget Responsibility anticipates 2% GDP growth in 2025, independent forecasts suggest a more modest 1.3% increase.
Emmerson cautioned, “The outlook is uncertain. Reeves might get lucky, exceeding growth forecasts, but she has little room for manoeuvre.
Should growth underperform, Labour’s commitment to deliver may falter, and public finances could face significant strain given Reeves’s reluctance to raise further taxes.”
Spending Review: A Balancing Act
The June 2024 spending review presents a critical challenge. Departments must find 5% savings amidst rising demands for investment in public services.
While the NHS, climate change, and justice sectors have secured substantial funding, questions remain about the focus on growth-centric expenditure.
Emmerson remarked, “Beyond 2025, spending plans tighten significantly. Balancing competing demands for funding will be arduous, especially in areas less directly linked to growth.”
Treasury Optimism Amid Challenges
Responding to concerns, a Treasury spokesperson cited Reeves’s determination to address economic challenges.
“The scale of the task after 15 years of neglect is immense, but we are resolute in delivering sustainable growth. Our plan for change will ensure long-term improvements, putting more money in people’s pockets through increased investment and reform,” they stated.
Keywords: UK Economy 2024, Rachel Reeves Budget, Public Service Improvements, Resolution Foundation Report, Living Standards UK, Economic Growth Challenges, UK Spending Review 2024.
