Households in the United Kingdom are projected to be between £440 and £770 worse off annually by the time of the next general election compared to when the current Labour government took office, according to new analysis by the Joseph Rowntree Foundation (JRF). This decline in living standards would mark the worst parliament for real income growth since modern records began in 1961.

The study attributes the squeeze on household finances to a combination of factors, including the ongoing impact of high energy prices driven by geopolitical tensions in the Gulf, sluggish wage growth, and increased taxation. Inflation, particularly in housing and energy costs, has outpaced nominal earnings growth, exerting sustained pressure on disposable incomes. The report highlights that rising taxes on incomes to support public services have further compounded the deterioration in living standards.

With Chancellor John Healey scheduled to deliver his first Budget on October 28, the JRF warned that Labour risks voter backlash unless it implements meaningful measures to ease the cost of living. The foundation advocates for policies such as removing levies from electricity bills and instituting cash payments linked to historic energy consumption to reduce household expenses.

Chris Belfield, chief economist at JRF, emphasized the broader implications of stagnating incomes, stating that without bold intervention, many families could face poverty levels reminiscent of a decade ago. Belfield noted that over seven million families are currently going without essentials, including food and basic toiletries, underscoring the depth of financial hardship facing many Britons.

Shadow Chancellor Andrew Griffith responded, calling on Labour to adopt alternative economic strategies. Griffith criticized Labour’s proposed tax increases and urged a focus on economic growth through measures such as reducing regulatory barriers, boosting youth employment, and expanding domestic energy production. He urged the government to consider policies similar to the Conservative proposal to increase North Sea drilling and implement a “cheap power plan” intended to lower energy bills.

A separate report from the Resolution Foundation drew a similar conclusion, estimating that pandemic-related inflation and conflicts in Ukraine and the Middle East have left the average household £2,900 worse off than they would have been under slower inflation conditions. James Smith, the think-tank’s chief economist, highlighted that poorer households have disproportionately curtailed heating and struggle to keep up with essential payments amid sustained high energy prices, which are likely to remain elevated due to ongoing geopolitical conflicts.

The Bank of England recently reported rising credit card defaults in the three months ending August, with financial institutions anticipating further increases through November. Concurrently, government borrowing remains elevated, with public debt approaching £3 trillion by the end of August and borrowing for that month totaling £18.3 billion, reflecting an increase from the previous year.

Chancellor Healey has reiterated his commitment to adhere to fiscal rules that limit government borrowing, setting expectations that the upcoming Budget will aim to reassure financial markets rather than introduce large-scale new spending. In recent measures to ease living costs, the government has cut VAT on domestic electricity bills starting October 1, capped bus fares at £2, and reduced business rates for certain sectors. The Conservative Party has pledged to eliminate the extended producer responsibility levy, which adds significant costs to businesses.

The Bank of England also noted that environmental levies on packaging contribute approximately 0.5 percentage points to overall food inflation, an additional factor influencing household budgets.