Millions of workers will suffer effective pay cuts and a fall in their standard of living for the next four years, an economist from the Treasury’s independent forecaster has warned.
Geoff Dicks, one of the three members of the Office for Budget Responsibility (OBR), told MPs yesterday that the UK will experience “falling real wages” as pay rises fail to keep pace with inflation.
Public sector workers have already had their pay frozen for the next two years, while many private sector workers have had to accept similar deals or part time work in order to preserve their jobs.
But figures from the OBR show that the rise in the cost of living will outstrip wage rises for some years to come.
According to its official forecasts, average earnings will rise 2.1pc this year, 1.9pc next year and 2.3pc in 2012. In that time, the Retail Price Index (RPI), traditionally used as the inflation benchmark for wage settlements as it includes housing costs, is predicted to rise 3.7pc, 3.2pc and 3.2pc.
“Our labour market works pretty well,” Mr Dicks told MPs on the Treasury Select Committee yesterday. “As evidence for that I would cite the freezes and cuts in private sector pay as people price themselves into work or accept lower pay so they are not priced out of work in a recession.
“We think the labour market will continue to do that. We’ve got falling real wages for the next three years, earnings rising less than CPI (the Consumer Price Index which does not include mortgages) and rather less, I think, than RPI for the next four years.”
Workers have already taken a real-terms pay cut in 2009, when average earnings rose 1pc against CPI inflation of 2.1pc.