UK living standards have lagged behind those of other industrialized countries since the financial crisis, highlighting the scale of the challenge for Chancellor Jeremy Hunt as he used his budget to take steps to make Britain one of the world’s “prosperous” nations.
The Office for Budget Responsibility is forecasting that real income per person for UK households in 2027-28 will still be below pre-pandemic levels, suggesting that Britons risk seeing little improvement in their living standards for 20 years.
Jumana Salehin, chief economist at Vanguard Europe, said that on the three key measures of living standards, household income, gross domestic product per capita and real wages, “we have seen stabilization over the last 15 years”.
“It’s growth, growth, growth until the global financial crisis and then flat,” she added.
UK real household incomes have accordingly remained broadly unchanged since 2007, before the banking crisis. data From the Office for National Statistics.
Household income per capita rose by 20 per cent in OECD countries between the first quarter of 2007 and the third quarter of 2022, but in the UK it rose by just 6 per cent, figures from the Paris-based international body showed.
“We’re in the middle of a decade in which incomes have barely grown, with two full decades of very weak growth,” said Paul Johnson, director of the Institute for Fiscal Studies, a think-tank.
Meanwhile the UK has recorded the second-lowest GDP growth per capita among G7 countries since the financial crisis, OECD data shows. British output per capita growth was half that of the US and EU.
And UK wages, adjusted for inflation, rose by 23 per cent in the eight years from 2008, before falling by 5 per cent in the following eight years, according to the ONS.
By 2021, UK real wages had risen by just 4 per cent since 2007, placing the country 28th out of 34 countries in the OECD ranking by earnings growth. That compares with real wage increases of 20 percent in the US and 16 percent in Germany.
Less affluent households in the UK have suffered the most during the downturn in living standards since the banking crisis, with life expectancy falling, according to economists.
Low-income households in the UK are now 22 per cent poorer than their counterparts in France, research by the Resolution Foundation, another think-tank, found.
For people living in the most deprived areas of England, life expectancy fell by eight months for women and five months for men between 2011 to 2013 and 2018 to 2020, according to the ONS. statistics.
Life expectancy has slowed, especially for people on lower incomes, said Jonathan Portes, professor of economics and public policy at King’s College London.
According to analysts, the UK’s lack of productivity growth since the financial crisis is responsible for the stagnation in living standards.
“The only factor explaining the poor performance of UK GDP per capita, real wages and real household disposable income is lower productivity growth relative to the rest of the G7,” said Ashley Webb, economist at Capital Economics.
Economists said there were a number of reasons for the UK’s weak productivity growth – or the slowdown in output per hour worked – including a downturn in the financial services industry after the banking crisis and stagnant business investment since the Brexit referendum.
Emily Fry, an economist at the Resolution Foundation, said that “even if business investment starts to pick up again, we will still have seven years or more of lost capital spending due to uncertainty”.
Fry said slow productivity growth after the financial crisis “is really what’s driving our poor living standards over the last 15 years”.
Salehin said the UK was on the cusp of productivity growth until the mid-2000s, when the country was catching up to the performance of the US, France and Germany, but slowed to near stagnation after the financial crisis. During that time, the UK moved from “hero to zero,” she added.
Some economists said the measures unveiled by Hunt in his budget on Wednesday would not be enough to significantly raise UK living standards.
One of the Chancellor’s key initiatives was a scheme to boost business investment under which companies could write off 100 per cent of their capital expenditure against taxable profits.
The capital allowances scheme has been in place for the past three years, and costs around £9bn a year, although Hunt said he wanted to make the arrangement permanent “as soon as we can responsibly do so”.
Johnson said that “governments need to learn that stability and a consistent long-term strategy are important for companies looking to invest and thereby secure a better standard of living”.
Ryan Shorthouse, chief executive of Bright Blue, another think-tank, said the budget suggested “economic growth and living standards will remain damp for the foreseeable future”.