The growth in disposable incomes in the UK has slowed significantly over the past 14 years, largely due to a series of economic shocks, including the financial crisis, the pandemic, and recent inflationary pressures. This sluggish growth has left typical household incomes rising by just £140 a year since 2010, according to a report by the Resolution Foundation.
Economic Shocks and Sluggish Growth
The Resolution Foundation’s report highlights that typical household incomes have increased by only 7% over the last 14 years. In stark contrast, disposable incomes rose by 38% in the 14 years leading up to 2010. The slowdown is attributed to three major economic shocks within just over a decade: the financial crisis, the Covid-19 pandemic, and double-digit inflation. These events, coupled with minimal catch-up growth in between, have resulted in an average annual income growth of just 0.5% since 2009-10.
Comparative International Performance
The UK’s post-crisis performance has been notably poor compared to other countries. Data from Eurostat covering 2007 to 2022 suggests that the UK experienced slower income growth than the Netherlands, France, and Germany, although it outpaced Italy. Had the UK matched the income growth of these countries, the average British family would be £2,700 richer annually by 2022-23.
Disparities in Income Growth
Despite the overall slowdown, poorer households have seen relatively stronger income growth. Between 2009-10 and 2023-24, the poorest fifth of households experienced a 13% increase in incomes, compared to 7% for typical households and just 2% for the richest fifth. This growth at the lower end is partly attributed to one-off cost-of-living payments, but even without these, the poorest households still saw a 7% rise in incomes.
The report notes that this income growth among poorer households has been driven by strong employment performance. Increases in pre-tax employment income alone have provided a 20% income boost for the poorest 30% of the working-age population. However, this has been offset by regressive tax and benefit policies since 2010, which have reduced the incomes of the poorest fifth by £1,900 on average.
Impact on Poverty Levels
Britain’s slow income growth has also resulted in slower progress in reducing poverty. Over the past 14 years, absolute poverty has fallen by 3.6 percentage points, lifting 1.3 million people out of poverty. In comparison, the 13 years prior to 2010 saw a 14 percentage point drop in absolute poverty, lifting 7 million people out of poverty. Relative poverty levels have remained stable, but the demographic makeup of those in poverty has changed significantly, with an increase in the number of children in large families living in poverty.
Future Outlook
Lalitha Try, Economist at the Resolution Foundation, commented on the findings:
“Britain is finally emerging from the cost-of-living crisis. But the bigger backdrop is a living standards slowdown that has left typical household incomes growing by just £140 a year since 2010. While global economic shocks have been a major factor, Britain’s recent record is poor compared to both its own history and many of our European neighbours.”
Try emphasized the need for the UK to reverse its poor productivity growth record and replicate its 2010s success in job growth to achieve a long-overdue increase in living standards in the next parliamentary term.
Conclusion
The slow growth in disposable incomes highlights the significant economic challenges faced by the UK over the past decade. While poorer households have seen some income growth due to rising employment, the overall picture remains one of stagnation and limited progress in improving living standards. Addressing these issues will be a critical task for the next government, requiring a focus on productivity and sustainable economic growth.
