The report highlights the widening cost-of-living challenges for middle-income households, with experts warning of reduced living standards and tightened public spending in the coming years. The impact will be most noticeable starting next week, when average earners could lose up to £140 annually due to economic adjustments.
Households Hit Hard by Economic Adjustments
In 2023, a single individual required an annual income exceeding £21,700 to rank in the top half of the UK’s income distribution. For a family of four, this threshold was over £45,400. Starting next week, individuals in these income brackets are expected to feel the effects of economic recalibrations, which could cut into household budgets significantly.
The Resolution Foundation suggests a 0.4% reduction in the living standards of earners in this group, roughly equating to £140 per individual. The shift is linked to a combination of stagnant economic growth, reduced fiscal flexibility, and increasing demands on public spending.
Carl Emmerson, deputy director of the Think Tank, emphasised the delicate balance required to navigate the coming fiscal challenges: “The outlook is uncertain. [Reeves] might get lucky. It’s possible growth will exceed the OBR’s forecast, things could go very well. But, equally, she could get unlucky. And I guess we don’t have much of a sense of what she would do.”
Long-Term Implications of Fiscal Adjustments
The economic strain isn’t confined to individual households. Broader fiscal challenges are forcing policymakers to evaluate spending priorities, with significant focus on healthcare, climate initiatives, and justice system improvements. However, critics argue that these allocations, while essential, may not effectively support long-term economic growth.
Rachel Reeves, Labour MP, has advocated for increased investment to stimulate growth but faces potential hurdles in meeting fiscal targets. Emmerson noted: “If she got unlucky, where would that leave [Labour’s] commitment to be delivering growth? Not very well. And what would she be doing on the public finances, given she seems to be unkeen on coming back for more taxes?
She’s not given herself huge wiggle room against her fiscal targets and while she topped up day-to-day spending a lot this year and next, from April 2026 onwards, the spending plans look pretty tight.”
The challenges are likely to persist, with rising competition for limited resources among public service sectors. Experts argue that striking a balance between growth-oriented policies and essential spending will be critical in stabilising both the economy and household well-being.
