Households could be £770 a year worse off by 2030, report warns

A 5p cut to fuel duty has been in place since spring 2022, meaning it has been frozen at 52.95p per litre for both petrol and diesel.

VAT on road fuel is charged at 20 per cent on top of the combined price of the product and fuel duty.

Currently, fuel duty and VAT combined make up 47 per cent of the total cost of a litre of unleaded and 43 per cent per cent of the cost of a litre of diesel, according to the RAC.

With fuel costs placing so much pressure on household incomes, the study by the Joseph Rowntree Foundation (JRF) looked at household incomes after housing costs, based on the Bank of England’s best and worst-case scenarios.

It found they were forecast to be between £440 and £770 a year lower by the end of the decade than they were in 2024/25.

Either scenario would represent the worst parliament for living standards since modern records began in 1961.

It found: “Income in 2029/30 is also projected to be below the level of a decade previously in either scenario.

“A decade of no growth in living standards is a disaster.

“We would typically expect average incomes to have grown by £10,000 over the period.”

It said that six months on from the start of the conflict in the Middle East, the true impact of the impact on living standards in the UK is still uncertain, and while the best case scenario of a quick return to the pre-war normality now seems less likely, it remains unclear how bad things could get.

The study noted a July report from the Bank of England forecast ‘central’ - ie best case - and ‘adverse’ scenarios for what could happen to fossil-fuel based energy sources.

Since then, oil and gas prices have moved closer to the adverse scenario projection, with diesel hitting more than £2 a litre and oil prices above $100 a barrel in mid-September.

Yesterday, a barrel of Brent Crude cost $115.25, far above the pre-war $70, and very close to the $118 peak seen at the end of May.

Further, the report found the impact of higher fuel costs affects poorer households disproportionately, with the lowest-income fifth of households spending 10 per cent of their disposable income on energy costs, compared to just 2 per cent in the richest fifth of households.

It said: “Even if the fall in income was distributed evenly, real-world effects would be worse for those with the lowest incomes.

“Those with the tightest budgets have the least means and room for manoeuvre.

“For some households falling income means cutting back on luxuries — eating out less often or switching to cheaper brands, but for the lowest-income households it is too often a case of which essential good they are made to go without.”

“Unfortunately, the anticipated fall in incomes is not evenly distributed, and is sharpest amongst the lowest-income households.

"In the central scenario, the lowest-income fifth are projected to have incomes 4.3 per cent lower in 2029/30 than in 2024/25 compared to smaller falls for those on middle and high incomes.

“This is despite the reversal of the two-child limit boosting the incomes of lower-income families with children this year.

“The lowest-income households are actually expected to experience the fastest growth in earnings between 2024/25 and 2029/30, likely in part as a result of recent increases in the national living wage and increasing employment rates.

“However, housing costs are growing faster still. And because housing costs take up more than 40 per cent of income in the poorest fifth (compared to less than one-tenth in the richest fifth) the impact is felt so much harder.”

The report did offer some optimism: “The Government can make the choice to implement direct fiscal and regulatory interventions to redistribute incomes and mechanically lower prices in a way that benefits the majority, funded by improvements in the fairness and efficiency of tax.”