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Inflation to squeeze living standards of employees

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Inflation may rise as high as 5% next year, the Institute for Fiscal Studies (IFS) has warned, putting a squeeze on living standards for many employees.

A high rate of inflation, combined with tax increases and low average wage growth, means that workers will face a higher cost of living - and that middle earners may be worse off this year than last. 


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Similarly, while provisions announced in the Autumn Budget, such as the rise in the national living wage, will help to ease the burden for the lowest earners, they will not escape the squeeze.

Paul Johnson, director of the IFS, warned that while the cut in the Universal Credit taper will benefit around two million recipients of in-work claimants, this means that recipients will find it harder to come off benefits.

A lone parent with one child and modest rent will now have to earn well over £40,000 a year to move off Universal Credit.

For those who are not earning, the rise in income will fall below inflation.

Johnson said: “Next April, benefits will rise by just over 3%, but inflation could easily be at 5%. That will be a real, if temporary, hit of hundreds of pounds a year for many benefit recipients.”

Even the raise in the national living wage of 6.6% might fall to around a 1.5-2% increase in real terms, as inflation is set to rise to 4.6% according to the bank CITI.

David Sole, chair of the board of trustees of Worldwide Cancer Research, told HR magazine that certain industries such as the charity sector would feel the pressure of inflation because pay awards have historically been based on affordability

He said: “The challenges that the third sector have faced during the pandemic have been well documented and many have seen their funding cut dramatically.

“Fortunately, because of a strong emphasis on regular giving, we are in a strong place financially. 

“We can therefore afford to look at what we believe are fair pay awards and the recommendation is to make a fairly generous award - but that recommendation has been derived from extensive research, benchmarking, and affordability.”

Frances O’Grady, general secretary of the Trades Union Congress, said that after a decade of wage stagnation, slow growth or a fall in living standards is the last thing working people need.

She added: “Ministers should get around the table now with unions and employers and work out fair pay agreements for every industry. That’s the best way to boost living standards and ease the pressure on households.”