UK household income growth stagnation and rising cost of living, Digi Mart USA News (United Kingdom): Britain is in the middle of a lost decade for income growth, which helps explain why many people feel no better off despite working harder, doing more overtime or securing pay rises. Quality of life appears stuck, even as earnings nominally rise.
The Institute for Fiscal Studies (IFS) and the Resolution Foundation, two leading Westminster think-tanks, have described the situation as “catastrophic” and have warned that a “painful” few years lie ahead. Official data show that the past decade has been the worst on record for growth in household incomes.
Slow growth, inflation and stubbornly high housing costs are the main causes. This was not always the case.
In the 1970s and 1980s, disposable incomes fluctuated but generally recovered after falls. That pattern has not held since the 2008 global financial crisis, Brexit and the pandemic.
In previous decades, households could expect to end up thousands of pounds better off. Now, the author writes, people will be fortunate to finish the 2020s a few hundred pounds better off.
Younger adults face the greatest difficulty in building wealth, buying a home or starting a family.
The average UK house price is currently around 6.5 times average income, compared with about 3.5 times in 1996 and 2.5 times in 1966. The Resolution Foundation has also warned that the government’s measures to address the cost of living, such as a £100 reduction in energy bills, did not match the scale of the challenges facing Britain.
The government’s recent budget was widely interpreted as cautious, with difficult spending decisions such as benefit changes, student loan repayments and a cut to the state pension triple lock deferred to 2030. Tax thresholds are to remain frozen until at least 2030, meaning pay rises push more earners into the higher 40 per cent rate band.
Higher-rate tax now applies to those earning £50,271 or more. The number of people earning over £50,000 has roughly doubled over the past decade, from about 3.5 million to around seven million.
The IFS projects that 7.8 million people, or a fifth of all taxpayers, will pay the higher rate by 2027-28, including about one in eight nurses and one in four teachers.
