Brace yourself: life to get as grim as 1970s

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If you think things are bad now, then there's bad news today... we ain't seen nothing yet. The director of the Institute for Fiscal Studies, Paul Johnson, has warned of 'payback time', as family finances get as desperate as they were in the 1970s.

So what should we be worrying about?

Johnson warned, in the Daily Mail, of five factors which will combine to squeeze the life out of our household budgets.

Killer blows
We are going to suffer the continued pain of soaring inflation, which means the horrible battle to make ends meet will get even worse. At the same time there will be the agony of tax hikes, as the government struggles to get back on top of its finances. Then there's the halt in wage growth, which means we're not able to make more money to help solve our financial problems. There are benefits cuts for those getting help from the government. And finally, those who live in any part off their savings have the impossible job of trying to get by on record low interest payments.

Johnson said: "We have not seen a period like that since the 1970s when rampant inflation and rising unemployment undermined living standards." The IFS estimates that the average family will have to live on £360 less a week than we did in 2008, as household income plummets.

Getting worse
And things are not set to get any better in the medium term. It says that budgets will remain below their 2008 level well into 2014 - and may even fall to the level we were living on in 2002.
Of course all this is based on averages. When you factor in the massive wages and bonuses of people at the top of the salary spectrum, then the collapse in living standards for those in the middle and the bottom is dramatic. A separate report by think tank Resolution Foundation found that after all this is factored in, out of every £100 in value generated by the UK economy, just £10 goes to the bottom half of worker's wages - this compares to £16 in 1977.

Gavin Kelly, chief executive of the Resolution Foundation, said: "If these worrying trends continue in the decade ahead, it casts doubt on whether those on low-to-middle earnings will see their living standards rise in line with economic growth."

And of course with growth proving so illusive, there's every chance that those on lower earnings will be struggling by on less and less with every passing year for some considerable time.

What can you do?
The report makes for depressing reading. Many households are squeaking by at the moment simply because they have cut their costs to the bone. The thought that things will be no better (and may even be much worse) three years down the track is a horrible blow.

The only advantage of a report like this is that it gives us fair warning. Those people who are getting by at the moment with the aid of credit cards and loans in the hope that things will pick up soon need to know that this is unsustainable. We need to face our financial problems as something we expect to live with for the next five years. We need to make whatever sacrifices necessary and make some harsh choices if we are to come through this testing time unscathed.

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