Living standards
·
Inequality & poverty

The Living Standards Audit 2022

Adam Corlett
Adam Corlett
Felicia Odamtten
Felicia Odamtten
Lalitha Try
Lalitha Try

This report, the 14th in an annual series, takes a long view of what has happened to household incomes in Britain over recent decades, what has driven periods of growth and stagnation, and the lessons that need to be learned if Britain is to return to stronger income growth in the decade ahead.

The report warns that Britain has experienced a toxic combination of both low growth and persistently high income inequality, and this has led to some groups being particularly exposed to the cost-of-living crisis. Despite some claiming that economic growth no longer feeds through to household living standards, we show that productivity, pay and incomes generally move in lockstep with each other. Stronger income growth will not only allow households to enjoy higher living standards in good times, but will also help provide stronger protection in tougher economic times.

Explore the report:

Read the report’s Executive Summary below, or download a PDF of the full report.

Key findings

  • Between 1961 and 2004-05, typical household incomes for non-pensioners grew by 2.3 per cent a year on average. Between 2004-05 and 2019-20, however, that growth slowed to just 0.7 per cent. Even more starkly, the typical incomes of the poorest fifth of the population were no higher on the eve of the pandemic than they were back in 2004-05.
  • Across European countries, only households in Greece and Cyprus saw a worse performance between 2007 and 2018 than the UK. By 2018, typical incomes were notably higher than those in the UK in Ireland (by 6 per cent), France (10 per cent) and Germany (19 per cent).
  • Inequality has remained high. The ten most unequal years on record have all happened since the turn of the century, and five of them were between 2013-14 and 2019-20. Internationally, in a wide range of rich nations, the top 10 per cent’s share of total disposable income is considerably lower than it is in the UK: in Ireland the top 10 per cent’s share is 5 percentage points lower, and in Australia it is 4 percentage points lower.
  • Groups with the lowest typical incomes pre-Covid-19 included social and private renters (37 and 24 per cent below the overall median), children (20 per cent below in the case of under 5s) and single parents (35 per cent below). The richest groups include mortgagors (27 per cent above the overall median), couples without children (33 per cent), 55-to-60-year-olds (19 per cent) and those in the South East of England (12 per cent).
  • Historically, typical incomes, pay and productivity have generally moved in lockstep. And across countries, the correlation between levels of pay and household income is very strong: the UK lags internationally on hourly pay (adjusted for purchasing power) just as it does for household incomes. From 1971 to 2008, hourly productivity growth accounted for over 100 per cent of growth in GDP per capita, with average hours falling.
  • The proportion of working-age families with no household earnings fell by 6 percentage points between 1994-95 and 2019-20. This trend helped to keep household-level earnings inequality flat over the same period, in the face of rising earnings inequality among working families.
  • The lack of an automatic link between entitlement to benefits and earnings puts upwards pressure on inequality and relative poverty, and means there is no guarantee that the poorest will share in income growth. The basic unemployment benefit was equivalent to 28 per cent of average earnings in 1972-73, but this had halved to 14 per cent by 2019-20, and in 2022-23 is likely to average 13 per cent.
  • Although average direct tax rates are rising, the UK stands out compared to our international peers in how low direct tax rates are for most of the income distribution. Other taxes, such as Council Tax and VAT, have risen over time, though the latter also has a low effective rate compared to our peers.
  • Rents are typically a larger share of renters’ incomes in the UK than in most other rich nations. Across all households, between 2003-04 and 2008-09 the average ratio of housing costs to incomes rose from 16 to 19 per cent – which for an individual household is equivalent to a hit to incomes after housing costs of 4 per cent – but this has reversed between 2008-09 and 2019-20.
  • The UK has committed to progressive growth through the international Sustainable Development Goals. A practical interpretation of these would be to reduce the absolute poverty rate (after housing costs) to under half its 2015-16 level by 2029-30, and to increase the income share of the bottom 40 per cent (which has been fairly stable at around 17 per cent over the past three decades).

Further reading

Housing Outlook Q1 2024
·
Lindsay Judge, Adam Corlett
A U-shaped legacy
Taking stock of trends in economic inactivity in 2024
·
Louise Murphy
We’ve only just begun
Action to improve young people’s mental health, education and employment
·
Charlie McCurdy, Louise Murphy
Adam Corlett
Adam Corlett Principal Economist
Felicia Odamtten
Felicia Odamtten Economist
Lalitha Try
Lalitha Try Economist