The UK is in the middle of more than a decade of stagnating wages, the Institute of Fiscal Studies (IFS) has warned. The think tank says that due to the economic impact of Brexit, the lasting effects of the financial crisis will last beyond 2021.
Real wages – wages corrected for inflation – are still lower today than they were in 2008, before the crisis. They had previously been forecast to finally return to pre-crisis levels by 2021, but the UK economy is now forecast to be £30 billion smaller – around £1,000 per household – by that year than if the country had voted Remain, meaning wages will stay flat for still longer.
This is worse news for millennials, whose earnings remain on average 7% lower today than they were pre-crisis – while pensioners' incomes are 11% higher today than they were in 2008.
"Around half of the wage growth projected for the next five years back in March is not now projected to happen," IFS director Paul Johnson said at a briefing on Thursday.
"On these projections real wages will, remarkably, still be below their 2008 levels
in 2021. One cannot stress enough how dreadful that is – more than a decade without real earnings growth. We have certainly not seen a period remotely like
it in the last 70 years."
Here's how the IFS has set out what's happening, and other effects of the first Autumn Statement since the Brexit vote.
March's Budget forecast wages to be above pre-crisis levels by 2021. November's forecast did not.
The IFS chart above shows that average earnings are now predicted to be about 3% lower than previously forecast. This is largely due to Brexit, which the OBR yesterday said was expected to lead to uncertainty, affecting investment and productivity and therefore wage growth.
Millennials are earning less than they were, older adults' earnings are stagnant, and pensioners are better off.
The IFS hasn't made any forecasts broken down in this way, but because millennials earnings are still so far below where they were in 2007, this suggests it will take still longer for this group's earnings to recover.
The UK will be £30 billion worse off in 2020/21 than previously forecast.
This is based on the official projection released yesterday by the OBR, which actually estimated the total impact of Brexit to be around £50 billion, or £1,250 per household, but some other measures partially offset this.
The IFS says people will feel the effects of this in two ways: through higher inflation (and so higher prices), and lower cash earnings.
Inflation is going to be higher than predicted before the Brexit vote.
This is the "higher prices" side of that prediction. In March, the OBR was predicting that inflation would rise slowly but steadily to its 2% target rate.
However, following the Brexit vote and the subsequent drop in the value of sterling, it's now predicting a much quicker rise in inflation, which it thinks will stay above the target value for around two years.
This is actually more optimistic than the UK's other official inflation forecast, from the Bank of England (the darker line), which predicts prices will rise by more and for longer than the current accounts suggest.
Higher inflation is going to make people who receive benefits even poorer.
Most working-age benefits, both for people in work and out of work, are currently subject to a four-year freeze introduced by George Osborne that Philip Hammond did not amend.
Because inflation is now higher, this will now amount to a bigger real terms cut for families receiving those benefits, which will particularly hit poorer households. The cut was previously expected to hit 11 million families by £280 a year, but is now expected to cost them £390 a year.
Hammond's changes to universal credit offset previous cuts, but not by much.
In March, George Osborne announced a cut to the "work allowance", the amount people who receive universal credit can earn before their payments start to be reduced, saving the government around £3 billion.
Hammond left this policy in place, but reduced the rate at which this money would be withdrawn from 65p per pound earned to 63p. The graph above shows one case of how that would change the earnings of a lone parent with two children.
If the parent worked only, say, 10 hours per week, Hammond's change would only reduce the impact on them by around £50 a year, but a full-time worker would be more than £200 a year better off thanks to the reform.
However, it's worth noting that even this person is still £300 a year worse off due to the overall effect of the reforms.
The government's tax and benefit reforms will hurt the poorest and benefit the rich.
This chart splits the UK into 10 income groups, with the poorest on the left and the richest towards the right. It shows that the poorest 10% of people in the country will overall lose around 11% of income, while the richest 10% will slightly gain.
Overall, the poorest 60% of the country face cuts, while the richest 40% are either unaffected or slight overall gainers.
These forecasts may all be optimistic.
The figures in the IFS analysis are all based on the OBR's forecast of the effects of Brexit on the economy over the next five years. However, the OBR is actually more optimistic than the Bank of England on both inflation and on growth.
If the Bank of England proves correct, the effect of the benefit freeze and other measures will all be still bigger and the hit to the UK economy and wages even more sizeable – meaning the UK's 13-year pay freeze could extend even further.