Britain facing '˜worst of both worlds on living standards'

Research by the Resolution Foundation found poorer households will suffer a fall in their incomes, leading to the biggest rise in inequality since the days of Margaret Thatcher.

The think tank said a recent mini-boom in living standards has now ground to a halt because of rising inflation and “plateauing” of employment in recent months.

Typical household income growth looks set to fall to 1.2% this year, with the slowdown forecast to continue until the end of this Parliament.

Government policies on tax and benefits were blamed for having an unequal impact on the predicted squeeze on living standards.

The richest fifth of households are set to enjoy income gains of around 5% over the next four years, compared with an average fall of 2% for the poorest, said the report.

This would make the current Parliament the worst for low and middle households since comparable records began in the 1960s, with poorer families with children particularly affected, according to the Resolution Foundation.

Director Torsten Bell said: “Britain has enjoyed a welcome mini-boom in living standards in recent years, but that boom is slowing rapidly as inflation rises, productivity flatlines and employment growth slows.

“The squeeze in the wake of the financial crisis tended to hit richer households the most, but this time around it’s low and middle income families with kids who are set to be worst affected.

“This could leave Britain with the worst of both worlds on living standards - the weak income growth of the last parliament and rising inequality from the time Margaret Thatcher was in Downing Street.”