Britain is heading for the worst decade of household income growth on record, the Institute for Fiscal Studies has warned, after John Healey's first Budget offered what the think tank called "unhelpful fiddling" rather than the decisions needed to strengthen the economy.
The IFS said the typical family's disposable income will rise by an average of just 2 per cent across the 2020s, the weakest decade in records dating back to the 1950s. Even the 1950s, a decade of rationing and post-war rubble, delivered faster growth. The finding is a forecast about the decade as a whole, much of it shaped by the pandemic, the inflation surge and years of frozen tax thresholds that predate this Budget. The Chancellor's measures, on the IFS's analysis, do nothing to change that path.
Helen Miller, the IFS director, said: "This decade looks set to be the worst decade for growth in household incomes on record. No amount of temporary cost of living packages will fix that. We need a stronger economy."
What the warning means for family finances
The measure behind the IFS warning is household disposable income: what families have left after direct taxes and benefits, adjusted for inflation. It is not a rival concept to living standards; it is the core of them. The differences between the think tanks are of method, not of conclusion. The IFS and the OBR track disposable income across all households, with the OBR smoothing short-term fluctuations using a ten-year rolling average, while the Resolution Foundation concentrates on working-age families. On every version of the arithmetic, the outlook is bleak.
The Office for Budget Responsibility, whose forecast underpinned the Budget, called it a "pretty grim picture" and blamed higher borrowing costs and inflation driven by the conflict in the Middle East. It downgraded its growth forecast for next year to 1 per cent, roughly half a percentage point below its March forecast, and raised its inflation forecast for 2027 from 2 per cent to 3.4 per cent. Measured across all households on its ten-year rolling average, living standards are forecast to grow by less than 0.1 per cent a year by the end of the decade.
The Resolution Foundation, which tracks living standards after housing costs, found real household disposable income per person is £420 lower than two years ago and will not recover that ground until mid-2029. Incomes are set to rise by an average of just 0.6 per cent a year over this parliament, making it the second worst for living standards since the 1950s. Prices are forecast to climb 6.5 per cent this year and next, twice the rise forecast in March, and the 2020s are now expected to bring double the inflation of a normal decade.
Taxation deepens the squeeze. The freeze on income tax thresholds will drag an extra 6.7 million people into paying income tax and push 5.4 million more into the higher-rate band by 2031-32, according to official Budget forecasts.
A Budget of small measures
Mr Healey's answer to that backdrop was a Budget of small measures. Up to 20 million households in council tax bands A to D in England will receive a £100 Household Energy Payment from January 2027, at a cost of £2.6bn, with additional funding for Scotland, Wales and Northern Ireland. The payment is funded by doubling the banking surcharge to 6 per cent for 15 months and by a two percentage point rise in tax on savings and property income. The Chancellor also extended the VAT cut on electricity bills until July 2027, postponed the fuel duty rise pencilled in by his predecessor and asked the energy regulator Ofgem to remove standing charges on gas bills as early as 2027.
He told the BBC the help would give households "breathing space", while conceding that government could "never remove completely" the pressure on family finances.
The Resolution Foundation called the support badly targeted. Delivering it through council tax bands makes it near-universal rather than focused on need: around four in five properties in England qualify, yet some one in eight households in the bottom half of the income distribution live in higher-band homes and will miss out, because entitlement still rests on property values from 1991. Ruth Curtice, the foundation's chief executive, said: "The Chancellor has missed the mark with badly targeted support that has left families facing a tough winter as energy bills rise."
The numbers explain the concern. Bills are set to average £2,210 across 2027, an increase of £600, or 38 per cent, on the 2026 average, with support worth up to £116 alleviating less than a fifth of the coming rise, according to the foundation's analysis. The IFS calculated that Budget measures will save the average family £140 by next July, around a third of the typical £400 increase in energy and fuel costs over the same period, a comparison reported by The Telegraph. Ms Miller called the outlook "depressing".
Nor was this a Budget of big choices. The Resolution Foundation ranked it the 19th biggest of the 34 fiscal events since 2010, with fresh policy changes worth £7bn by the end of the forecast, against a £72bn average across the previous two budgets. The scorecard ran to 98 measures, a length the IFS attributed in part to the Prime Minister's "everyday fixes", alongside what it called "a lot of small, unhelpful fiddling with the tax system".
A welfare pledge that lasted hours
The Chancellor's account of his own welfare policy did not survive the day. Asked on BBC Radio 4's Today programme whether there would be a cut to the overall welfare bill before the next election, he said: "There will be a reduction in the benefits bill. We'll do that in a Labour way." It was, he added, "simply not good for Britain" to have a bigger and bigger benefits bill.
On Channel 4 News later that day he conceded: "It's not correct to say that we're going to bring this welfare bill down in this parliament because we've not set a timetable for that." Downing Street insisted that no timetable had been set, telling reporters the government was "not setting an arbitrary target or timetable on that", while the Treasury disputed that the Chancellor had ever suggested to the BBC that the bill would be cut before the next general election.
The distinction matters. The Chancellor promised a reduction. He published no timetable for delivering one. The Budget offered no comprehensive welfare reform or funded timetable for bringing the benefits bill down, leaving the major decisions to next year's spending review and the Milburn and Timms reviews, both due to be published in November. The scale of the unfinished business is large: the Office for Budget Responsibility expects total welfare spending to grow from £334bn last year to £431bn in 2031-32, an £8bn upgrade since March, with the rise driven primarily by health-related and pensioner benefit spending.
Ms Miller said the Chancellor was "more enthusiastic about pencilling in reductions in borrowing than actually delivering them". The criticism is not that reduction is unnecessary, but that Labour has set out no strategy for achieving it.
A £28bn hole and 'pretty brutal' cuts ahead
The IFS warned that the difficult decisions had been deferred rather than taken. Departmental spending plans were left broadly unchanged in cash terms, which higher inflation will cut in real terms. Taking the plans at face value, the IFS calculates that avoiding the real-terms cuts implied by higher inflation and tight envelopes could plausibly require a £17bn top-up in 2030-31. A further £11bn, it estimates, is needed to fund defence plans to 3 per cent of GDP by 2030. Together they amount to £28bn of potential future spending pressure under the IFS's assumptions, which Ms Miller said implied "pretty brutal" cuts for some departments. The figure is the IFS's assessment of the pressure building beneath the Budget, not a shortfall the Treasury has acknowledged.
Spending plans "look extremely tight", she said. "They don't look to me like plans that this government would want to deliver." Her scepticism is grounded in history. "When Chancellors pencil in tight spending plans in the future, they tend not to deliver," she said, adding that she was left with the impression the Chancellor is hoping forecasts improve enough to make good on his borrowing plans without large spending cuts or tax rises. She was "sceptical that this Government would be willing to do it".
The Resolution Foundation's reading is scarcely kinder: unprotected departments such as Justice, Transport and Work and Pensions face real-terms cuts worth 6.7 per cent, some £12bn in total, by the end of the forecast. The fiscal buffer, nearly halved by higher borrowing costs, stands at £14.5bn in 2029-30. Andrew Griffith, the shadow chancellor, said the Budget had left the public finances "more fragile" as a result.
Business rounds on the Chancellor
Rain Newton-Smith, chief executive of the Confederation of British Industry, said the Budget "does not meet the scale of that ambition" and "lacks the bold moves that would have made it easier for firms to invest, hire and grow". While welcoming business rates relief for retail, hospitality and leisure firms, she said it "misses the chance to deliver the wholesale reform to the system we desperately need". Financial services firms already face a higher tax burden than overseas rivals, she warned, and "the surcharge makes the UK less attractive to investors, and ultimately the cost will be paid by ordinary people through higher borrowing costs". Businesses facing energy bills a third higher than their European counterparts were offered "nothing concrete". Writing in The Telegraph, she put it plainly: "We won't get growth by holding back success."
Chris Hayward, policy chairman of the City of London Corporation, questioned why the Chancellor had not addressed the "eye-watering" sums spent on benefits before launching a raid on banks. "Braver decisions are needed, starting with the welfare bill," he said. Lord Peter Cruddas, founder and chief executive of CMC Markets, called the Budget "pretty useless at addressing the real problems the country is facing, with spiralling borrowing costs and higher bond yields. 'Penny wise and pound foolish' sums it up nicely".
Mr Griffith accused the Chancellor of "fiddling while Rome burns". "We face an unprecedented squeeze on household finances and he's just produced a budget of small measures rather than any big thinking," he said.
The mood on the high street was already grim. Poundland filed a notice of intention to appoint administrators on Thursday afternoon, putting around 12,000 jobs and some 600 stores at risk while it seeks a rescue deal. The retailer's troubles stem from its ownership and financing, with its owner Gordon Brothers having launched a sale process in September, but managing director Barry Williams acknowledged the process was unfolding against a "challenging UK economic environment".
Defence decisions kicked into the long grass
The same deferral ran through defence funding. Tanmanjeet Singh Dhesi, the Labour chairman of the Commons defence select committee, welcomed funding for the Defence Investment Plan but said key decisions had "lamentably been delayed until next year's spending review". "There is a cost to inaction," he warned. "Our adversaries are not bound by fiscal years and spending cycles." Unless capabilities are rebuilt now, Britain risks "leaving ourselves seriously vulnerable" in the event of a major conflict.
Wes Streeting, the Defence Secretary, dismissed the criticism as "completely wrong", pointing to the government's commitment to the biggest sustained increase in defence spending since the end of the Cold War and a target of 3 per cent of GDP by 2030. The IFS, for its part, is "still no wiser as to how he plans to get there, let alone to 3.5 per cent by 2035", Ms Miller said.
A pint in Westminster while pubs count the cost
Publicans accused the Chancellor of being 'tone deaf' after he was filmed drinking a pint of Chancellor's Choice at the Two Chairmen pub in Westminster following his Budget. The celebration sat awkwardly with the numbers: an inflation-linked rise in alcohol duty will add around 2p to the price of a pint, hospitality faces another above-inflation increase in the minimum wage to £13.21 an hour, and the sector's business rates relief, while welcomed, stops short of the reform the industry says is overdue.
The Campaign for Pubs called the video "galling and extraordinarily tone deaf". Chris Jowsey, chief executive of Admiral Taverns, which operates around 1,400 pubs, said: "I'm not sure I'd have been celebrating. The sector's not celebrating."
Great British PAC reaction
Great British PAC campaigns for responsible public spending, transparency over the welfare bill and fair treatment of the working families, taxpayers and businesses who carry the cost of these decisions.
Richard Thomson, National Director of Great British PAC, said:
"This is the worst outlook for household incomes in modern British history, and the Chancellor’s answer was a handful of small everyday fixes. No serious reform of welfare, no plan to bring down energy costs, no strategy for growth. Business leaders have called it a missed opportunity. The Resolution Foundation is already talking about a lost decade. And within hours the Chancellor had contradicted his own welfare pledge. That is not a Budget for a country that wants to get richer. It is a Budget for a government that hopes the problem will go away. It won’t."
The consequences fall not on ministers but on ordinary households. Working families face energy bills forecast to rise by hundreds of pounds in 2027, alongside frozen tax thresholds that will pull millions more people into income tax by 2031-32. Taxpayers face a welfare bill heading for £431bn without a published plan to control it. Businesses face higher taxes and borrowing costs that make it harder to invest, hire and grow. Sustainable economic growth is essential to improving living standards, funding public services and strengthening Britain's long-term finances, and the Government must deliver more than temporary cost-of-living measures. British families deserve a credible economic plan, not another decade of stagnation.