Lower-income households are set to become £500 a year poorer over the Parliament

27th March 2025

The combination of a weak economic outlook and benefit cuts that fall disproportionately on lower-income families means that living standards are on track to fall. This will happen over the next five years for the poorest half of households by £500 on average, according to the Resolution Foundation's overnight analysis of Spring Statement 2025.

Key findings include:

A gloomy economic outlook for Britain today... The UK’s past and present growth record is weak. GDP per capita (one of the Government’s targets for growth) increased by less than 1 per cent in 2023 and 2024, and is set to grow by just 0.2 per cent in 2025 - the first three-year period of consecutive anaemic growth since the early 1990s.

…but a brighter future awaits? The Office for Budget Responsibility (OBR) revised up its forecast for growth to 1.8 per cent between 2026 and 2029 – well above the Bank of England and all other independent external forecasters. If the economy were to follow the average external forecast over this period instead of the OBR’s, output in 2029 would be £24 billion lower, reducing revenues by around £10 billion and wiping out the Chancellor’s headroom.

Feast and famine for public services. Unprotected departmental spending has not returned to austerity, but has continued its funding rollercoaster. Real per capita spending in 2029-30 is broadly in line with 2015-16 levels, but has had huge swings in funding in between. For example, the 4.5 per cent cuts to unprotected departments pencilled in between 2026-27 and 2029-30 will undo two thirds of the spending injection provided by the Autumn 2024 Budget for this year and next.

£4.8 billion welfare savings contain £8.1 billion worth of cuts. The full scale of welfare cuts are far greater than the net £4.8 billion savings. After accounting for the £1.9 billion boost to the standard rate of Universal Credit (UC), and the ‘gain’ from not going ahead with scored-but-never-implemented changes to the Work Capability Assessment, cuts to ill-health, disability and carer’s benefits rise to £8.1 billion in 2029-30, and will continue to grow over time.

Huge holes in the welfare safety net. Welfare changes will create a lot of small cash gains in Universal Credit (UC), as well as huge cash losses. A non-disabled couple on UC will see their support rise by £370 a year, but a couple on UC where one is disabled and the other is a full-time carer could lose £10,300 a year from PIP, the UC carer element and the UC Health cut (all impacts in 2029-30, but in 2024-25 prices). Transitional protections are needed to prevent such sharp income shocks.

Poorer households most affected by tax and benefit changes in this Parliament. The overall impact of all tax and benefit changes taking effect in this Parliament will reduce the incomes of the second poorest fifth of households by 1.5 per cent, compared to just a 0.6 per cent fall for the richest fifth.

Falling living standards for lower-income families. Over the next five years, the average income across the poorest half of working age households is projected to decline by three per cent, or £500. A fall of this scale has only (narrowly) been exceeded historically by the early 1990s recession (1989 to 1994-95) and the financial crisis (2007-08 to 2012-13).

Ruth Curtice, Chief Executive of the Resolution Foundation, said:

"High debt servicing costs, weak tax receipts, and the need to reassure jittery markets, meant the Chancellor had to announce tax rises or spending cuts in her Spring Statement.

“She chose to focus the bulk of her consolidation on welfare cuts. These cuts have been justified on the basis of getting people into work, but it is questionable how much of a jobs boost they’ll deliver. After all, the bulk of the cuts are to disability benefits which aren’t related to work, and the cuts take effect from 2026, three years before the Government’s employment support programme kicks into gear.

“While the OBR’s outlook for growth today got gloomier, it is far more optimistic about Britain’s medium-term economic prospects. The Chancellor will hope that reality catches up with the OBR, rather than the OBR falling back to reality, otherwise more tough choices await.

“The outlook for living standards remains bleak. Britain’s poor economic performance, combined with policies that bear down hardest on those on modest incomes, mean that 10 million working-age households across the bottom half of the income distribution are on track to get £500 a year poorer over the course of the Parliament."

Notes to Editors

The tax and benefit changes modelled in the overnight analysis include: narrowing the qualification criteria for the daily living part of Personal Independence Payment; losses from carers who would no longer be entitled to Carer’s Allowance if the person they cared for were no longer entitled to PIP; reducing the value of the LCWRA element paid to UC claimants who are unable to work; a 5 per cent increase to the standard allowance of UC by April 2029; changes to tobacco and vaping duties, Vehicle Excise Duty, air passenger duty (APD); private school taxes; fuel and alcohol duties; means-testing Winter Fuel Payments. We also assume a 0.5 per cent fall in earnings as a result of the rise to employer NI, in line with OBR assumptions. We do not model any non-wage effects of employer NI changes, such as higher prices or unemployment. We do not include the impact of changes to Capital Gains Tax or Inheritance Tax.