Workers will have to secure a pay rise of at least 7pc just to keep up with the soaring cost of goods and services this year and millions of pensioners will be left several hundred pounds worse off than they were in 2021, according to the Institute for Fiscal Studies, the respected think tank.
In total, £187 will be wiped off British pensioners’ annual income, as the state pension increase is below inflation. They will be £5,000 a year worse off than today within 20 years under the same assumptions, Telegraph Money analysis found.
Rail fares and student loan interest bills will also rise. They are increased each year in line with the retail prices index, which tends to be higher than the more common consumer prices index measure of inflation. The RPI has hit 7.1pc – the highest for three decades.
As well as this, a five-year freeze in personal tax thresholds announced in the spring Budget last year means tax breaks will fail to keep pace as inflation rises. This will force workers into higher tax bands even when they are no better off than they are today, a phenomenon known as “fiscal drag”.
A million parents will also lose their child benefit payments this year, the IFS said, as the means-test ceiling for those who can claim the full payout has remained frozen at £50,000 since 2013.
The same effect will result in thousands more people paying inheritance tax in the coming years, according to official forecasts, while the “stealth tax” freeze to the £12,570 income tax personal allowance will alone net the state £20bn by 2026.