Unsung Britain

Britain is not a nation at ease. We convened squeezed workers, carers and others – in places from Warrington to Worcester – and heard a sense of malcontent, voiced directly, which has been long years in the making. Things were felt to have got decidedly “harder” over the last generation, with the recent past particularly grim (“within four years, you could feel the slide”). There was bafflement about why things have played out so badly, when life was “never like this before.”

The material roots of this mood of unease trace to a prolonged stagnation in disposable incomes that stretches far and wide across the population, a phenomenon that the Resolution Foundation has documented in many past reports.

This book, however, examines how this petering out of progress has played out among working-age families in the lower half of the income spectrum. By dropping pensioners, an historically poor group that has now seen its relative fortunes improve over decades, we foreground those either dealing with the evolving realities of the workplace or confronting barriers to working. By concentrating on families in the bottom half of the range, we home in on those whose budgets inevitably have less slack to tighten during lean years. Our aim, then, is to focus on the sharp end of the country’s shared squeeze.

We dub our target group ‘Unsung’ because – as we shall show – over the last generation this segment of society has been quietly contributing a lot more to the economy (by working harder) and wider society (via more care, particularly of disabled adults). And yet the rewards this group enjoys have not been adjusted in line with the rising effort.

The latest official data, covering 2023-24, shows that typical disposable incomes among our target ‘Unsung’ group have been on the floor for almost 20 years, with annual growth a barely discernible 0.5 per cent. That compares to a 1.8 per cent annualised growth over the 40 years running up to 2004-05, and a particularly buoyant annualised growth of 4 per cent in the final decade of that period. The differences involved of a few percentage points compound over time with profound effects. Over the 40 years up to 2004-05, the incomes of our target group doubled; over the recession-free final decade, they had looked on course to double in 18 years. By contrast, if progress continues to crawl in the way it has since the mid-2000s, a further doubling would take over 130 years.

While the squeeze is widespread, affecting the top half of the income distribution as well as the bottom, there is one important – and nasty – twist relating to the lowest rungs on the ladder. At the 10th percentile, incomes have cumulatively sunk outright by 3 per cent over two decades. Further down the range, mis-reported and volatile incomes notoriously cloud the data, but looking even lower down, such as the 5^th percentile, the evidence suggests a still sharper decline.

Against this backdrop, this book draws together an 18-month programme of research to expose, analyse and start thinking about how to improve the material realities of working-age families with below-average disposable incomes. Our overall period is ‘the last generation’, stretching back to the mid-1990s, and it is useful to consider this full 30 years, not least because the first decade gives us a comparative reminder of how conditions were evolving before stagnation set in. But our focus is what happens once the big squeeze takes hold. When it comes to disposable incomes, the data tells us that this happened earlier than is commonly remembered; the stalling of pay and productivity occurred around 2005, and thus before the financial crisis.

Since that time, however, a run of disruptions has given the story a series of twists: the bursting of the credit bubble in 2007-08, the uncertainty following the Brexit vote in 2016, the unprecedented emergency of the pandemic in 2020, and then – most recently – the energy shock that began in 2022. Different items on this list were particularly important for different aspects of living standards, and throughout we will see the important role of government policy in shaping incomes too. Applying ourselves to the big changes considered in each chapter – inflation, employment, prices and so on – will therefore require us to focus on different breakpoints within the overall story in different chapters.

The 13 million families that make up Unsung Britain at the end of our period look notably different from those at the start. Sometimes the shifts are in line with wider social change – thus our group is, in keeping with UK-wide trends, older and more ethnically mixed than in the past. But other changes are striking. Many more of today’s lower-income Britons are childless and single than they were in the past. Changes in tenure have been particularly dramatic – with a ‘swing’ of over 10 percentage points away from homebuying and into private rentals. One of our overriding messages is that these sort of changes in how families form and where they live can be just as important for overall living standards as more obvious shifts in earnings and other incomes.

Nonetheless, we start our tour of Unsung Britain in the workplace. There is, in fact, a surprising amount of good news in relation to jobs. This segment of society is working more: its total employment rate is up by a substantial 11 percentage points over our period, fully accounting for the overall rise in UK employment since the mid-1990s. This is a positive force for the earnings of those on below-middle incomes; so too, more recently, has been a sharp real rise in the value of the hourly minimum wage, which is currently 32 per cent higher than it was a decade ago. This has contributed to broader falls in pay inequality, with a narrowing gap between the middle and the bottom of the scale in both hourly and weekly rates, and more recently also some narrowing between the middle and top of the scale.

And yet. Despite all these favourable winds, when we look at the totality of what lower-income Britain actually earns, the tailing off is unmissable. The average gross annual earnings of someone in a lower-income family has increased by £7,700 since the mid-1990s to £18,000 today – but nearly three-quarters of that increase took place before 2005. The deepest problem here is that reduced pay inequality doesn’t do much for absolute living standards if the average is stuck, as it has been.

Policies to make a difference:

• Supply-side reforms to boost growth and therefore increase the returns to paid work and, ultimately, improve living standards in all parts of the country.
• Implementing a ‘Fair Pay Agreement’ model for social care that will set minimum standards for pay and other conditions, and extending it to other sectors with acute labour market issues.
• Effective enforcement of labour market rights, including the new rights to a contract reflecting workers’ usual work patterns and advance notice of shift changes.

If disappointing progress on pay compared to the past is a big reason why lower incomes are not rising like they used to, over the last 15 years, steep cuts in many working-age benefits have also directly hit living standards. Higher spending on pensions in an ageing society and a rapidly rising disability benefit caseload have offset this development, so welfare as a whole hasn’t got any cheaper for the taxpayer overall. But an accretion of general squeezes and freezes on benefit rates, plus specific cuts such as the two-child limit and the ‘bedroom tax,’ have accumulated to sap the benefit income that Unsung Britain receives. Things were very different until the end of the 2000s, when receipt of social security income across the group was rising – up by an average £1,900 a year – reinforcing the gains of rising employment. But since 2010, the amount of benefit income has fallen by £1,600 a year for those with below-average incomes, in part due to the benefit cuts of that decade, and much more among the poorest. And it is worth remembering that many benefits go to families in work. The proportion of those below the poverty line who are in ‘working households’ has risen from 38 per cent to 55 per cent over our period as a whole.

Policies to make a difference:

• Addressing the drivers for higher demand for health-related benefits including by reviewing eligibility criteria and rebalancing incentives across the benefits system.
• Consistent and stable indexation of social security benefits, including uprating both working-age benefits and the state pension with earnings in the long run, via a smoothed link to wage growth.
• Linking Local Housing Allowance for private renters to the actual rents faced.

For living standards, what goes out automatically matters just as much as what’s coming in. Direct taxes are the first non-negotiable here, but are – in general – strongly progressive, absorbing in total around 12 per cent of what the poorest families have coming in against 31 per cent for the richest. This slant ensures Unsung Britain is less affected by many taxes, but not all are so benign: Council Tax payments constitute a little more than 1 per cent of income at the very top, against nearly 5 per cent at the very bottom. Over the last generation, Council Tax has both risen and become more unfair. Basic bills went up during the 2000s, and then, over the last decade, nationwide rebates for poorer families were dismantled across England. The increasingly farcical nature of the Council Tax base – 1991 property valuations – is widely understood as punishing those who live in places where house prices have stagnated. Less appreciated however, is the unravelling of the two things that gave the levy a tranquil birth after the horrors of the Poll Tax: subsidies to keep bills down, and generous discounts at the bottom. Hard-pressed Britain is already paying the immediate price, but in due course so could politicians.

The lower-income families we spoke to had certainly noticed increased Council Tax payments and were particularly aggravated that these had not led to improvements in local services – quite the opposite. It is hardly surprising that local authorities facing significant real terms cuts alongside rising demand from statutory responsibilities (such as on social care) have often failed to meet residents’ expectations. What was clear from our focus groups was that the resulting lack of trust in local government fed a wider lack of trust in the political system. Indeed, while the top priority for participants was the cost of living, the clear second was fixing services – rating well above demands for higher incomes.

Besides tax, the other – and for many even bigger – unavoidable monthly bite out of income is housing costs. The effects vary wildly: in today’s ageing society, many more Britons in the bottom half for income live in homes that they own outright and so get off lightly. But there has also been a huge ‘swing’ out of homebuying and into costly private rentals. More lower-income Britons – some 8.6 million – now live in such tenancies than in mortgaged homes. On average, rent gobbles up 43 per cent of their total post-tax income. They enjoyed none of the automatic savings on interest that mortgagors benefited from for so long, and then more recently have seen rents racing ahead of incomes.

As a result of such variation, the effect of housing on the average disposable income is neither dramatic nor particularly informative. Nonetheless, we see clearly how profoundly important its effects can be when we track individuals over time, and examine the various ‘trapdoors’ that can cause a family to fall from the top to the bottom half of the spectrum. Over a quarter (26 per cent) of those who started off in the top half for incomes but became private tenants drop into the bottom half over a four-year period. That constitutes a higher risk of dropping down into the bottom half than applies to those who had children at all (21 per cent) and far higher proportion than for those who became unemployed (just 13 per cent). People adjust to such pressures where they can: some 15 per cent of the ‘families’ across lower-income Britain are today (mostly young) adults living at home with their parents. Remarkably, that figure is now not far off the 17 per cent of families still classed as mortgagors.

Policies to make a difference:

• Building more homes – especially social homes – and especially in growing regions, where rising rents could otherwise shortchange workers and impede dynamism.
• Reform property taxation to support efficient allocation of the existing housing stock, including reform to Council Tax charges and rebates to lessen the burden on lower-income households.
• Give English local areas greater control over their finances, including devolution of taxes linked to local economic performance.

The story of housing over the last generation, then, is complex – with many older and much younger people dodging the huge costs that weigh on the swelling ranks of private renters. This has rendered housing a polarising force. Many families who would otherwise have decent incomes are dragged down to well below the middle purely by the need to pay rent.

The recent story with other basic living costs is, however, simpler. All the usual statistics on disposable incomes – including the grim numbers quoted above – underplay just how dark the 2020s have been for Unsung Britain’s living standards because of the peculiar slant of recent inflation. Prices used to rise more or less uniformly across the income range, but over the five years from 2019, the bite of inflation grew shaper with each step down the scale. Why? Because lower-income families inevitably spend more on life’s essentials, for which costs have recently risen the most.

That is a change as compared to most of our period, during which the news on the price of necessities was mixed. Some of life’s basics got a lot cheaper. For example, buoyant global trade was pushing the price of clothing down in cash terms until the early 2000s, and even after that it continued to get cheaper relative to other things. Other essentials such as food broadly used to track headline inflation, while supermarket competition helped to keep prices relatively low by international standards. Unit energy costs had, by contrast, been creeping up, but until fairly recently improved insulation and technology was curbing use and so offsetting the effect on bills.

But the energy crisis that started in earnest when Russia invaded Ukraine sent prices to a dizzying peak. Bills soared and remain high. The effects seeped out to other essentials, notably food. The slanted inflation that resulted has now reduced the lowest living standards relative to the highest by more than 3 per cent over the last few years – in a way that is missed by all the standard figures. We can see one (potentially literally) chilling implication in the rocketing energy arrears. Starting around 2017, the number of energy customers in the red has surged, rising to 1.6 million for gas and nearly 2 million for electricity; more recently, the average of what these customers owe has roughly doubled to, respectively, £1,300 and £1,100. The real terms stock of Council Tax arrears, another big household bill, has also jumped – from around £4.6 billion to £6.8 billion over the five years to 2024.

These growing difficulties in keeping up with bills are especially striking because they come after what has mostly been a sustained period of prudence for Unsung Britain. Over the 2010s, more lower-income people reported saving regularly than before, and that paid off. True, a frighteningly high proportion of poorer families still lack the ready buffer of £1,000 needed to deal with such ‘ordinary emergencies’ as a bust boiler or a broken-down car. But the proportion without such a buffer (after adjusting for inflation) has dropped: from just over three-fifths on the eve of the financial crisis to just over two-fifths in the latest data. Consumer debt, too, is down: the average working-age family on a bottom-half income closed the 2010s owing 20 per cent less in real terms (£2,100 in 2018-2020) than their counterparts had owed (£2,600) back in 2006-08. Unfortunately, the swelling energy and Council Tax debts suggest that some of this apparent reduction in liabilities is less a case of debt disappearing than it changing form.

Policies to make a difference:

• Bring down energy bills by moving more of the cost of government policy into general taxation. Development of the data infrastructure required to deliver targeted support based on both income and energy needs.
• Action to reduce the costs of transport for lower-income families, through better targeting of discounted bus passes, for example.
• The Competition and Markets Authority should investigate specific areas where the market is not providing fair prices to consumers, and where there is evidence that consumers find it hard to exercise choice effectively.

For as long as anyone can remember, longevity has incrementally improved. During the 2010s, however, progress that had seemed automatic ground to a halt. Mortality among people aged 45-54 started to rise around 2015. Even before the pandemic, official statistics were pointing to dwindling life expectancy in more deprived communities. Once the virus had taken its toll, the total drop-off in the poorest postcodes was around four times that in the richest. Mortality gaps are the endpoint of a far wider gulf in health: for men in the most prosperous parts of England, the expectation is for 70 years in good health; in the least prosperous, that is just 51 years. Relatedly, disability – although it has recently been rising in both the richer and poorer parts of the country – is perennially more common in Unsung Britain, where it affects 30 per cent of adults compared with 18 per cent among the better-off.

The comforting explanation for the 11-percentage-point rise in the incidence of disability across our target group since the mid-1990s is that it is simply a result of the wear and tear that might be expected in an ageing society. Unfortunately, age explains only a small fraction of the trend: 83 per cent of the rise has other roots. Foremost among the rise in younger age groups are problems with mental health. This points to enduring and large effects on the personal finances of millions of families, because almost a third (31 per cent) of poorer disabled people report being unable to work because of their health, and even among those who do work, majorities suggest that mental and physical problems restrict the nature or amount of work they can do.

The forgotten corollary of rising disability is more – and more intensive – care needs. These needs fall disproportionately on older women, and there is a big and growing ‘care gap’ between rich and poor. In homes of modest means, 1 million people have care responsibilities of 35-plus hours a week, obligations on a scale that is likely to make full-time paid work impossible. And the carers in our target group are, if anything, slightly more likely than disabled people themselves to describe their situation as ruling out paid work: 34 per cent of them do so. There is no hiding from such numbers: any serious strategy to improve the overall lot of Unsung Britain must have both disabled people and carers at its heart.

Policies to make a difference:

• New incentives and proper enforcement so all employers support disabled workers, including a ‘Return to Work’ recruitment reward for firms who hire disabled people, and a new ‘Right to Reintegration’ for workers on sick leave.
• Extend statutory carers’ leave from one week to four – and make the first two weeks payable by employers at the same rate as Statutory Sick Pay
• Additional investment in young people’s mental health, from further education colleges to employers, and better pathways to work or study for young people with poor mental health and low levels of qualifications.