Overview
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).
Key findings
1. Median income growth since 2009–10 has been slow, with pensioners doing slightly (but not dramatically) better. Median income grew by 6% from 2009–10 to 2022–23. Before the Great Recession, we could have expected growth of 30% in a 13-year period. Even comparing with 2011–12 – the year in which incomes reached their nadir after the Great Recession – incomes rose by only 10% over the subsequent 11 years.
2. Income growth for high income households has been even weaker since 2009–10 than for people on average or lower incomes. At the 90th percentile, total income growth was just 1.5%. This has led to a small decline in income inequality.
3. Absolute poverty has fallen since 2009–10, though slowly by historical standards. The overall rate of absolute poverty fell by 3.4 percentage points (ppts): a fifth of the speed seen over the previous 13 years (16.2ppts). Since the pandemic, income poverty rates have been little changed. But some other measures of deprivation have got worse. In 2019–20, 4% of working-age adults (1.8 million) reported being unable to heat their home; by 2022–23, that figure had risen to 11% (4.6 million).
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. Average real pay in 2023–24 was just 3.5% higher than in 2009–10. Before the Great Recession, we would have expected that kind of growth every 17 months. After-tax pay is modestly higher (6.4%) thanks to 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. But median disposable income appears broadly unchanged.
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. While growth slowed across the board, the UK’s growth from 2007 to 2019 (6%) was well below that of the US (12%) and Germany (16%).
7. Raising living standards over the long run means raising productivity – and policy can play a critical role.
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