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Home Publications The UK finally had good household income growth in 2019–20, and then the pandemic hit

The UK finally had good household income growth in 2019–20, and then the pandemic hit

Observation

Today, the Department for Work and Pensions released the latest official statistics on household incomes, poverty, and income inequality. The latest data covers the year 2019–20, and thus provides us with a snapshot of people’s incomes right up to the eve of the COVID-19 pandemic. As the statistics are based on a survey of around 20,000 households, care should always be taken when interpreting year-on-year changes in measures of average incomes and poverty, so this observation puts the latest data in the context of changes in recent years. 

The key findings from the newly released data are:

1) Median (middle) household income measured before deducting housing costs (BHC) rose by 4% in real terms between 2018–19 and 2019–20, leaving it at £547 per week. The increase over the two years from 2017–18 to 2019–20 was 3% at the median.  

The relatively strong growth in 2019–20 is likely to have been in part a result of the statistics “bouncing back” after surprisingly poor measured median income growth the preceding year (when it fell by 1%). But the growth in 2019–20 also reflects continued increases in employment and nominal earnings growing well above inflation in 2019–20, which push up average incomes. 

However, the statistics also highlight how weak average income growth has been ever since the Great Recession. Comparing incomes in 2019–20 to the last year before the 2008 financial crisis (2007–08), median incomes have only grown by 9% or 0.7% per year. This is extremely slow growth by historical standards and compares to the average annual growth of 2.2% seen in the 20 years prior to the 2008 financial crisis.

Figure 1. Median net household income, £ per week, since 2002-03

Note: Incomes have been measured net of taxes and benefits and before housing costs have been deducted, and are expressed in 2019–20 prices. All incomes have been equivalised using the modified OECD equivalence scale and are expressed in terms of equivalent amounts for a childless couple. 

Source: Department for Work and Pensions, ‘Households Below Average Income: An analysis of the UK income distribution: FYE 1995 to FYE 2020’

2) After increasing slightly in 2018–19, there was a larger fall in the overall rate of absolute income poverty (measured after deducting housing costs from income) from 20% in 2018–19 to 18% in 2019–20.  

The fall in absolute poverty in 2019–20 follows four prior years (2014–15 to 2018–19) of little change in absolute income poverty (see Figure 2). It reflects the rise in household incomes for low income families in 2019–20, as is shown in Figure 3, and looks, again, to be in part a result of a “bounce back” from particularly large falls in incomes for low income households in 2018–19. The statistics also suggest that lower income groups have benefitted from lower growth in housing costs in 2019–20 relative to the population as a whole. 

The statistics show that over the last two years of data (2017–18 to 2019–20), the rate of absolute income poverty fell by 1.5 percentage points for both children and working age adults, while the fall was smaller for pensioners (0.8 percentage points).  

Figure 2. Absolute poverty rate (AHC), by demographic group

Note and source: Incomes are measured after housing costs are deducted. For other details, see Figure 1. 

Figure 3. Real growth in percentiles of AHC income since 2007-08

Note and source: Incomes are measured after housing costs are deducted. For other details, see Figure 1. 

3) Overall relative income poverty (measured after housing costs are deducted) remained stable in 2019–20, at 22%. While the absolute poverty line is unchanged in real terms from year to year, the relative poverty line changes in line with average income. The fact that absolute poverty has fallen since 2017–18, while relative poverty has been relatively unchanged, means that the incomes of both poorer and middle-income households have both grown, and at a similar pace.  This can be seen in Figure 3. 

As Figure 4 shows, there have now been 15 years of very little change in the overall relative poverty rate. However, the new data also shows that the relative poverty rate for children rose from 29% to 31% over the two years from 2017–18 to 2019–20. And the rate for pensioners also rose over the same period, from 17% to 18%. These rises bring the relative poverty rates for these groups back to around the level seen before the 2008 financial crisis. In both cases these rises are continuations of gradual longer-term trends that started in around 2011, and suggest the incomes of poorer families with children and poorer pensioners are falling behind those households on average incomes. 

Figure 4. Relative poverty rate (AHC), by demographic group

Note and source: Incomes are measured after housing costs are deducted. For other details, see Figure 1. 

The official statistics highlighted in this observation only cover data up to March 2020. A more in-depth study of recent trends in household incomes, poverty, and income inequality, funded by the Joseph Rowntree Foundation, and which includes information from other data sources on household incomes during the pandemic, will be published in the Summer. 

This observation was written as part of a project funded by the Joseph Rowntree Foundation. The views expressed in this report are, however, those of the authors and not necessarily those of the Foundation. Co-funding from the ESRC-funded Centre for the Microeconomic Analysis of Public Policy (ES/M010147/1) is gratefully acknowledged.

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