Half of working Britain has seen no rise in living standards since early 2000s

Published on Incomes and Inequality

Squeeze on earnings and rising housing costs have hit family budgets, fuelling disillusionment at economic and political status quo

Weak income growth and rising housing costs have effectively wiped out any gains for low and middle income working age households since the early 2000s, providing the backdrop to disillusionment with the political and economic status quo, according to a major new report published today (Tuesday) by the Resolution Foundation in the aftermath of the UK’s Brexit vote.

By taking into account the drag on living standards of rising housing costs, the report shows that family budgets have been more squeezed than standard measures of incomes imply. The Foundation warns that this squeeze started well before the financial crisis and has occurred despite post-crisis record low interest rates putting downward pressure on housing costs. The Foundation adds that since the early 2000s rising housing costs have born down most heavily on low-to-middle income households.

Looking at the impact of housing costs on living standards among different groups, the report shows from the start of the income slowdown in 2002 to 2015:

  • Over half of households across the working age population have seen falling or flat living standards – equivalent to almost 11 million households;
  • Two-thirds of the growth in average working age income has been wiped out by rising housing costs;
  • More than all of the growth in private renter income has been wiped out by rising housing costs; and,
  • The same is true for households headed by someone aged 25-44 who will also have seen all of the growth in average income wiped out by rising housing costs.

The report shows that while London is a standout case in terms of how housing costs have dragged down living standards – the share of income spent on housing has risen by almost a third in the capital since the early 2000s – it is wrong to see this as a southern problem. It finds that the North is catching up with the South – Scotland, the North West and the East Midlands have all experienced sharper increases in housing costs as a proportion of income than the South East and South West.

The Foundation notes that regional differences in the strength of leave votes were rooted in long term geographical economic inequality rather than shorter term trends, and that explanations for last week’s vote go far beyond economic concerns. But the widespread squeeze on living standards for working Britain since the early 2000s has affected all parts of the UK, increasing dissatisfaction with the status quo.

As politicians from all parties consider how to respond to last week’s vote, the Foundation says they will need to understand these trends and respond to them, including with a renewed focus on house building.

It adds that while many aspects of incomes are hard for government to directly influence in a globalized world, the failure on housing is home grown – and tackling it is well within the power of government.

With the short-term economic turbulence caused by the Brexit decision likely to increase inflation, the Foundation also says that now is not the time to press ahead with rolling out large cuts to working age benefits that will further erode living standards for lower income households.

Torsten Bell, Director at the Resolution Foundation said: “There were many factors – both cultural and economic – behind Britain’s decision to back Brexit last week.

“But stagnating living standards have been an important background to rising dissatisfaction with the economic and political status quo, particularly among poorer households. The fact that the British people have seen successive governments fail to seriously address problems that are well within their control, such as housing, has only reinforced that feeling. “

Lindsay Judge, Senior Policy Analyst at the Resolution Foundation said: “Britain’s stagnation in living standards has a range of roots – from low pay growth to high inflation during the financial crisis. But rising housing costs have played a much bigger part than is normally appreciated.

“And while it’s not possible for government to solve all the living standards challenges we face, the failure to address our housing crisis is a long and sustained home grown public policy failure. Finally getting to grips with our housing crisis would help to boost living standards for millions of people and have the added benefit of helping young people, many of whom have been hit hardest in recent years.”