In her Spring Statement, Rachel Reeves promised that the average household would be “over £500 a year better off” under Labour – even after inflation. For millions feeling the pinch, it was a headline moment.
As a positive, it was one for the chancellor to hang her hat on - though pales in comparison to 250,000 being sent into poverty by other cuts to the welfare bill.
But how real is that £500? Is it money in your pocket, or just clever forecasting? Within minutes, the message had already started to shift – and the fine print tells a very different story.
The first question is easy to answer in part: given the data was from the Office of Budget Responsibility (OBR), it should be trusted to have been arrived at in diligent fashion, factoring in the latest economic data to give Ms Reeves the headline that household disposable income was growing “at almost twice the rate” as had been forecast last year.
However, there may have already been some revisionism on that within minutes - and the lack of clarity and consistency is arguably as concerning as any quickfire change - with Labour posting to social media that average households would be £500 better off in the final year of parliament, not each year.
But the second part of the question is arguably more real for those families she’s talking about - and, sadly, it probably isn’t one they’ll be delighted by.
It is not, of course, as though it means £500 is suddenly deposited in bank accounts or pockets.
Some have even interpreted those words as being £500 better off across the entire course of parliament, with Martin Lewis of MoneySavingExpert.com surmising on social media from OBS notes that the sum is generated “over the life of parliament not per year.”
“Most of it comes in the last two years, after [it] drops first, and is based on assumptions that some current tax proposals eg. freezing tax thresholds will end,” he continued.
Economics experts are largely in agreement and even suggested the sums meant a more modest improvement of the national economy over the mid-term than Ms Reeves and co had initially been forecasting.
“This is hardly ground breaking and I’m not sure anyone will or should be celebrating this modest increase,” Blick Rotherberg CEO Nimesh Shah told The Independent.
“This, in itself, suggests that the economy is not going to grow to anywhere near the extent that Labour were promising when they came into government and the policies aren’t working – despite Rachel Reeves suggesting otherwise at the start of her Spring Statement.
“Households being £500 a year better off [over the full term] is less than £2 per week. But sticky inflation will wipe that out with some ease.
“When inflation remains high, interest rates aren’t coming down as quickly as expected and the economic growth has been halved, £500 in five years (an awfully long time away) doesn’t touch the sides and I don’t expect provides any encouragement.”
As to exactly where that increase in money comes from, the outlook is uncertain - and it is a lower real income rise than families have seen previously too, says Oxford Economics analyst Michael Saunders.
“The rise in real incomes per household comes from pay growth running slightly ahead of inflation, in the OBR’s forecast,” he told The Independent.
“As to whether it matters: to put it in context, real disposable income per head in 2024 Q3 (the latest available data) was just 1.0 per cent above the 2019 level.
“We don’t know what the per cent rise implied by the £500 is, but the OBR expect real disposable income per head to rise by 3.2 per cent from the end of 2024 to the start of 2031.
“Will people notice this faster income? Perhaps, but its not going to transform things. From 1997 to 2007, real income rose by 27 per cent, so the OBR’s outlook is pretty low compared to that.”
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