Recent findings from the Institute for Fiscal Studies (IFS) paint a stark picture of the UK’s economic landscape over the past 15 years, revealing a significant stagnation in income growth that has left the average Briton markedly less well-off than they might have been under previous growth trends. According to the IFS, if incomes had continued to grow at the rate seen before the Conservatives took power in 2010, the average Briton would be nearly £5,000 richer today.
Persistent Weak Income Growth
The IFS report underscores a period of unusually weak income growth affecting a broad swath of the population—rich and poor, young and old—since the Great Recession. This widespread stagnation has not only impacted the UK but has also been a feature across the globe as nations struggled with the aftermath of the financial crisis, the COVID-19 pandemic, and surges in energy prices. Despite these global challenges, the UK has notably lagged behind other countries in income growth, even falling further behind since 2019.
Modest Improvements Amid Significant Challenges
Between 2009-10 and 2022-23, median incomes in the UK grew by a mere 6%, a stark contrast to the 30% growth that might have been expected over a 13-year period before the Great Recession. High-income households have seen even weaker growth, partly due to direct tax increases, with total income at the 90th percentile growing just 1.5%. This minimal growth has led to a slight decline in income inequality.
Despite some reductions in ‘absolute poverty’, which has fallen by 3.4 percentage points since 2009-10, progress is notably slower than in previous decades. Other measures of deprivation have worsened, with a significant increase in the number of working-age people unable to afford heating their homes.
Employment and Earnings: A Mixed Picture
The UK job market experienced a boom from the Great Recession to the pandemic, but this was paired with very poor average pay growth. In 2023-24, average pre-tax pay was only 3.5% higher than in 2009-10. Post-tax pay growth has been somewhat better, reflecting significant tax cuts for middle earners, which means that someone on average earnings now pays £2,000 less in tax than they would have in 2010.
Looking Ahead: Prospects and Policies
Tom Waters, an author of the report and an Associate Director at IFS, emphasized the pervasive nature of slow income growth in the UK. “Poor income growth has been an unfortunate feature of economic life in the UK over the last 15 years,” said Waters. He noted that while income inequality has remained stable, the overall slow growth affects everyone and hampers efforts to reduce poverty. Waters called for a focus on productivity increases and suggested that thoughtful reforms in taxes, planning, and education could significantly enhance the UK’s long-term prospects.
Mubin Haq, Chief Executive of abrdn Financial Fairness Trust, also commented on the findings, highlighting the potential for stagnation to become the new normal in the UK. “Living standards have languished for more than a decade,” Haq noted, stressing the need for future government actions to be centered on tackling hardship and enhancing living standards.
Conclusion
The IFS report is a sobering reminder of the challenges facing the UK economy, particularly in terms of income growth and living standards. As the country looks to navigate its way out of this prolonged period of economic sluggishness, strategic and focused policy interventions will be crucial to reversing these trends and ensuring a more prosperous future for all residents.
