Weak income growth – widespread for richer and poorer people, older and younger people – has been with us since the Great Recession. Much of this poor growth has been replicated in other countries as the world has had to cope with the fallout from the financial crisis, COVID, and energy price rises. Even so the UK has been falling behind most other countries, including since 2019.

In new IFS research released today, funded by the abrdn Financial Fairness Trust, we set out seven key facts that summarise trends in households’ living standards. We focus on the trends since 2009–10 (the last year of the last Labour government) and over the course of this parliament (since 2019–20).

These key facts are:

 1.Median incomes grew by just 6% between 2009–10 and 2022–23. Pre-Great Recession we could have expected growth of 30% in a 13-year period.

2. Income growth for high-income households has been even weaker, in part because of direct tax increases. At the 90th percentile, total income growth was just 1.5%. This has led to a very slight decline in income inequality.

3. Since 2009–10 ‘absolute poverty’ has fallen by 3.4 percentage points (ppts), but this is only a fifth of the speed seen in the previous 13 years (16.2ppts). While income poverty rates have not changed much since 2019–20, some other measures of deprivation have got worse. For example, the share of working-age people saying they were unable to heat their home rose from 4% (1.8 million) to 11% (4.6 million).

4. There was a boom in jobs between the Great Recession and the pandemic, but very poor average pay growth. In 2023–24 average pre-tax pay was just 3.5% above 2009–10 levels. After-tax pay growth was faster (6.3%) due to significant tax cuts for middle earners. Together with further tax cuts in the past two months, someone on average earnings now pays about £1,600 less tax than someone on the same real earnings in 2010 would have.

5. Latest data and forecasts show disposable incomes back at pre-pandemic levels, and average earnings higher. Real average earnings this year are expected to be 4% higher than in 2019–20, and earnings inequality probably slightly lower. But median disposable incomes are broadly unchanged from 2019–20, due to falling employment, tax rises for some groups, and higher mortgage payments.

6. The UK went from one of the fastest growers for working-age incomes pre-2007, to one of the slower performers. While growth slowed across the board internationally, the UK’s growth from 2007 to 2019 (6%) was well below that of the US (12%) and Germany (16%). The UK’s relative performance has not improved since the pandemic.

7. Raising living standards over the long run means raising productivity – and policy can play a critical role. Reforms to taxes and planning; better education; targeted public investment (and regulation that does not hold up public or private investment); better trade relations with the EU; and political stability would all likely help.

Tom Waters, an author of the report and an Associate Director at IFS, said,

‘Poor income growth has been an unfortunate feature of economic life in the UK over the last 15 years. And it has been slow growth for essentially everyone; rich and poor, old and young. This means that even while income inequality has been stable, progress on reducing absolute poverty has been painfully slow.

‘Although there has been a widespread slowdown in growth internationally since the financial crisis, the UK has fallen from being one of the fastest growers prior to the Great Recession, to one of the weakest performers. In the long run, what is needed is rises in productivity. And, while there is no silver bullet, policies here can and do matter: reforms to taxes, planning, education and more can make a material difference to the UK's long-term prospects.’

Mubin Haq, Chief Executive of abrdn Financial Fairness Trust, said:

‘Unfortunately, living standards have languished for more than a decade. On a range of measures UK performance has been weak, especially in comparison to other wealthy countries. The danger is that stagnation becomes the new normal. This is in no one’s interests and stunts too many futures and too many lives. Key to any future government will be a renewed drive to tackling hardship and improving living standards.’

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