Digging beneath the figures on household disposable income

Published on Incomes and Inequality

Figures released earlier this week by the Office for National Statistics showed that total real disposable incomes have fallen in the UK for the first time in thirty years. But behind those headline figures, if we instead look at disposable income per head, there’s an interesting story about the performance of different regions across the country. In particular, strong growth in London is masking a much longer term squeeze in living standards in other areas – and one that long-predates the recession.

The latest ONS data shows that over the period 2003-2008 average UK disposable household income per head fell by 1.1%. And while households in some UK regions, such as London, experienced growth (3.9%), others, such as Yorkshire and the East of England, saw their disposable income decline even more sharply (by -3.5% and -4.1% respectively). In fact, in the period from 2003-2008, London is the only region in England that has not seen an overall decline in average disposable income. And over the longer term, in the past 14 years, it is the only region in the UK that has not seen disposable income drop for a single year.

Disposable income chart

It is worth noting that London is a ‘special case’ in terms of income statistics. Some of the poorest boroughs in the country are in the London area, as well as some of the wealthiest. Average (or mean) disposable household income, the figure that sits at the heart of this analysis, is boosted by the disproportionate number of people who earn very large salaries in London – the so-called “super rich” – compared to the rest of the country.

Even these figures will hide significant variation. The long-term nature of this squeeze belies the argument that blames it solely on the recent recession. For the households being hit, the recent stagnation in disposable income is having a very real and long-term impact on living standards. But it also has significant implications for the wider economy. As the UK struggles to maintain a reasonable level of growth, stagnant disposable incomes will become an ever more pressing concern. The OBR has recently revised downward (large PDF) its forecast for consumption growth in 2011, 2012 and 2013 as a result of expected negligible rises in household incomes. Today’s forecast for growth now relies on households dipping into their savings to prop-up consumption growth. That’s a big assumption, and even if accurate, it’s one suggests further pressures on family budgets in the years ahead.

Household chart

Over the next 18 months, the Resolution Foundation will be hosting the Commission on Living Standards, a wide-ranging investigation into the pressures now facing low-to-middle earners. The Commission’s focus will be focused on the long-term economic trends that are changing the reality of life on low-to-middle income.

 Note: Regional gross disposable household income (GHDI) includes housing costs but does not include expenditure on food and fuel. The full ONS methodology can be found athttp://www.statistics.gov.uk/downloads/theme_economy/RegionalAccountsMethodologyGuide.pdf The data in this article have been adjusted for RPI inflation.