Seven key facts about UK living standards

1. Median income growth since 2009–10 has been slow, with pensioners doing slightly (but not dramatically) better. 

In 2022–23, the latest data available, median (middle) real household disposable income in the UK was 5.9% higher than in 2009–10. By historical standards, this growth is weak: had the average annual growth rate over the prior half-century continued, growth would have instead been 30%.

Examining incomes after deducting housing costs slightly improves the numbers (7.3% growth), as does comparing the 2022–23 level with that in 2011–12, just before the start of the recovery from the Great Recession (9.8%). But none of this really challenges the overall picture of an extended period of slow growth. Nor have things rapidly improved since the period captured by the latest official data: forecasts from the Office for Budget Responsibility (OBR) suggest that 2024–25 incomes might be only 7.6% above their 2009–10 level.

Pensioners have seen somewhat better growth (9.0%), thanks to a combination of real-terms rises in the state pension and newly retiring pensioners being richer than their predecessors. Their incomes declined between 2020–21 and 2022–23 as the state pension temporarily fell in real terms as inflation rose, but by April 2024 it had recovered its 2020–21 value. Among working-age people, there is not much variation: those in their 20s were hit hardest by the Great Recession but have done the best since, leaving income differences between age groups little changed.

2. Income growth for high-income households has been even weaker since 2009–10 than for people on average or lower incomes.

So far, we have discussed changes in median incomes. Differences across the distribution are not huge, though higher-income households have seen weaker growth still: 3.3% at the 75th percentile and just 1.5% at the 90th. This is driven by weaker growth in hourly wages for higher-paid individuals and an increasing number of people paying higher-rate tax.

Lower-income households have seen slightly weaker growth than middle-income households, with 3.8% growth at the 10th percentile. This is a consequence of rises in employment being partly offset by cuts to benefits. It is worth noting that if we account for housing costs, growth has been stronger for poor households (10% at the 10th percentile). This is because average real housing costs fell by 15% between 2009–10 and 2022–23, mostly due to a decline in mortgage interest rates (some of which has since reversed), plus social rents falling in real terms. As poorer households spend a much larger fraction of their income on housing, the reductions in housing costs particularly benefit poorer people. A small contributing factor has been a shift towards owning outright among poorer households (20% of the poorest fifth now own outright).

The effect of all these patterns is to very slightly reduce overall measures of income inequality such as the Gini coefficient – though the bigger picture is that income inequality has changed very little since around 1990. 

3. Absolute poverty has fallen since 2009–10, though slowly by historical standards.

Absolute poverty – defined as having an income (after housing costs) below 60% of the 2010–11 median – has fallen from 21.3% in 2009–10 to 17.9% in 2022–23, with falls among children, pensioners and those in working households. But because incomes tend to rise over time, absolute poverty generally falls over long periods, and this 3.4 percentage point (ppt) decline is small by historical standards: in the previous 13 years, the fall was five times as fast (16.2ppts).

Relative poverty – defined as having an income below 60% of the contemporaneous median – has changed little, falling by 0.7ppts over the period. There has also been surprisingly little change since the pandemic and cost-of-living crisis: relative and absolute poverty rates in 2022–23 were similar to the rates seen in 2019–20.

However, an alternative measure of low living standards – material deprivation – tells a different story. Material deprivation measures the fraction of households unable to afford a set of important items. Having fallen across the 2010s, material deprivation has risen sharply in the wake of the cost-of-living crisis. This may partly reflect headline poverty rates not capturing the higher inflation rates that poorer households have faced due to food and energy making up more of their budgets. Among working-age adults, the fraction that report being unable to afford:

• To keep their home warm enough – rose from 4% in 2019–20 to 11% in 2022–23;
• To keep their home in a decent state of decoration – rose from 10% to 13%;
• To save £10 a month or more – rose from 19% to 23%.

4. No average pay growth between the Great Recession and the pandemic, but a boom in jobs. Since 2019–20, pay has held up, despite high inflation.

After falling in the wake of the Great Recession, employment rose strongly from 2011–12 up to the pandemic, significantly surpassing the pre-recession peak. Increases were seen across men and women, immigrants and UK-born people, different age groups, regions and family types. During the pandemic, employment faltered by around 1ppt and has not recovered since (though some data sources show a more optimistic pictureⁱ ) but is still 2.1ppts higher than in 2007–08.

The story for earnings has been very different. After a long fall and slow recovery, pre-tax average earnings in 2023–24 were in real terms just 1.6% above 2007–08 levels, and 3.5% above 2009–10 levels. The numbers are slightly more positive for after-tax pay for someone on average earnings (6.3% and 6.4% respectively), reflecting significant tax cuts for middle-earning workers. 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 level of real earnings in 2010 would have.

Nonetheless, these are low growth rates by historical standards. From 2000 to 2007, average real pre-tax pay grew by 2.4% per year. Viewed in that light, the total growth seen between 2009–10 and 2023–24 is equivalent to what we previously might have expected in about 17 months.

5. Latest data and forecasts show disposable incomes back at pre-pandemic levels and average earnings higher.

Figure 5 provides the best available evidence from the latest data and OBR forecasts on the path of average earnings and disposable incomes between 2019–20 and 2024–25. (Naturally, the forecasts should be treated with caution.) Average earnings were resilient through to 2023–24. Further earnings growth is expected this year as inflation falls, leaving average earnings 4% higher than in 2019–20. In terms of changes in earnings across the distribution, Henry and Joyce (2024), comparing a number of data sources, provide evidence that earnings inequality is no higher, and probably a little lower, than it was in 2019.

In comparison, median disposable incomes have seen less dramatic changes. Overall, it is likely that average incomes in 2024–25 are roughly unchanged from 2019–20 (despite the growth in real earnings and state pensions). Reasons for this include falls in employment and rising mortgage interest rates suppressing income growth.

6. The UK went from one of the fastest growers for working-age incomes among developed countries pre-2007, to one of the slower performers.

The poor performance of living standards since the Great Recession means that the UK has fallen down the league table relative to other European and North American economies. In the 12 years pre-financial crisis, median working-age incomes rose by over 40% in the UK, one of the best-performing countries. In the 12 years post-2007 (up to 2019), growth was slower across the board. But in the UK it was just 6%, making it one of a number of slow-growing countries, similar to France. 

There are not up-to-date consistent international measures of median working-age household income growth. Examining mean income growth among the whole population shows that the UK’s relative performance has not improved since the pandemic: between 2019 and 2023Q2 (latest data), UK incomes fell by 0.5%; of the 12 other countries in the right panel of Figure 6 that we have up-to-date data for, only Austria and Sweden have seen worse growth (–2.6% and –1.1% respectively).ⁱⁱ   

7. Raising living standards over the long run means raising productivity – and policy can play a critical role.

Precisely attributing blame for poor income growth in the last 15 years is difficult. The slowdown in growth across the developed world makes it clear that there are plenty of non-UK-specific factors at play, though it is also notable that the UK has slid down the growth league table in that time. Since 2019, it is perhaps unsurprising that growth has stalled given the COVID pandemic and energy price crisis, though again the UK seems to have fared somewhat worse than many comparable countries.

Whatever the root causes of the growth malaise, looking forward the only sustainable route out is increases in productivity – the amount we produce for every hour worked. And while there are no silver bullets here, we do know what the government can do to put us in the best position for good growth. First, reform taxes to prevent unnecessary disincentives to work and invest. Second, reform the planning system to allow housing and commercial development in the places where people want to live and where companies want to invest. Third, deliver high-quality education that raises human capital. Fourth, make well-targeted public investments, bearing the long-term future in mind. Five, ensure that regulation that does not unnecessarily hold up public or private investment. Six, improve trading conditions with the EU – our biggest and nearest trading partner. Seven, political consistency and stability help.

Naturally, translating these broad targets into specific, effective, politically feasible policy proposals is no mean feat. But if the government is to have a positive impact on the UK’s future living standards, this is what it will have to grapple with.