People will be hit with the biggest ever fall in disposable income since 1956, as Jeremy Hunt unveiled £55bn in tax rises and spending cuts.
On Thursday the chancellor moved to try and fix the damage done by the government’s mini-Budget in September.
But Paul Johnson, of the Institute for Fiscal Studies (IFS), said voters were in line for a “simply staggering” drop in living standards.
Figures from the Office for Budget Responsibility (OBR) showed disposable income per person will fall more than 7% over next two years.
“Biggest fall on record,” Johnson said. “Taking incomes down to 2013 levels.”
OBR figures show living standards will fall by 4.3% in 2022-23, the largest since ONS records began in 1956- 57.
That is set to be followed by the second largest fall in 2023-24 at 2.8%.
The OBR, the official watchdog tasked with producing economic forecasts, also said the UK is already in recession and set to shrink by 1.4% next year.
Unemployment is expected to rise 505,000 from 3.5% to a peak of 4.9% in the third quarter of 2024.
Speaking in the Commons, Hunt said Vladimir Putin’s invasion of Ukraine was largely to blame.
The chancellor said it had caused a “global energy crisis, a global inflation crisis and a global economic crisis”.
He said: “There may be a recession made in Russia but there is a recovery made in Britain.”
But Rachel Reeves, Labour’s shadow chancellor, said Hunt had “picked the pockets” of voters.
She said just one of Hunt’s decisions, to freeze the income tax personal allowance, will cost an average earner more than £600.
“The Conservatives would have us believe that they are not responsible for the last 12 years of failure. In doing so they take the British people for fools,” she said.
“It is a familiar tune – every mortgage they raise, every cut they make, every tax they hike, the Conservatives are costing you.”
The OBR’s latest forecasts have been long awaited after the official forecasting body was not used during the mini-budget, led by former chancellor Kwasi Kwarteng.
Economists partially linked the shock to the pound and bond yields following the mini-budget announcement to a lack of visibility on the impact of the previous government’s fiscal plan.