Unsung Britain

The new Government has a clear ambition to deliver broad improvements in living standards. This is a welcome goal in the wake of the weakest Parliament on record for living standards. But success relies on policy makers recognising that Britain’s two decades of stagnating living standards have hit poorer families hardest. Between the mid-1990s and mid-2000s there was consistent income growth for low-to-middle income families: for the typical non-pensioner, low-to-middle income household, after housing cost income increased by close to 50 per cent, from £11,600 to £17,200 in today’s prices, a very similar increase to those on higher-incomes. Since then, however, income progress has been much slower and also regressive: typical low-to-middle household incomes grew by just 10 per cent (equivalent to £1,700), while incomes at the 10th percentile only grew by 7 per cent since 2004-05 (equivalent to £770). Low-to-middle income households in the UK are also worse off than their counterparts in other, comparable rich countries: for example, such households were 27 per cent poorer than their French counterparts in 2018.

To design policy successfully, we need to understand today’s low-to-middle income families, and their concerns in the mid-2020s. For this reason, this report launches a major new Resolution Foundation project designed to understand the economic circumstances of today’s 13 million low-to-middle income working-age families and how these circumstances have changed in recent decades.

Like the UK as a whole, demographic changes mean that working-age families in the lower-half of the income distribution have been getting older, on average. The proportion of adults aged 20-39 in low-to-middle income families has fallen from 55 per cent in 199495 to 44 per cent in 2022-23. By contrast, the proportion in their 50s has risen from 16 per cent to 20 per cent over the same period. Low-to-middle income adults are now almost as likely to be in their 50s as in their 20s (20 and 21 per cent respectively) – a big shift from 1994-95, when people in this group were around 60 per cent more likely to be in their 20s. As a result, the typical adult in a low-to-middle income family was 40-years-old in 2022-23, five years older than in 1994-95 (35-years-old).

As well as getting older, low-to-middle income families today have fewer dependent children. The proportion of low-to-middle income families that have dependent children has fallen from 43 per cent to 35 per cent between 1994-95 and 2022-23, and nearly half (48 per cent) of all low-to-middle income families are now single people without children, up from around 2-in-5 (40 per cent) in 1994-95.

Finally, migration patterns also mean that low-to-middle income families have become more ethnically diverse over the past 30 years. In the mid-1990s 9-in-10 (90 per cent) people in such families were White, but this had fallen to just under 8-in-10 (79 per cent) by 2020-21 to 2022-23, a bigger change than seen among higher-income families.

One of the good news stories for the British economy in recent decades has been the rise in employment rates, particularly among low-to-middle income families. As a result, although employment rates have remained high for adults in higher-income families, the gap between higher and low-to-middle income families has been closing, as the employment rate for the latter group has increased by around 9 percentage points since the mid-1990s. This has almost halved the proportion of low-to-middle income families that are workless, from 24 per cent in 1996-97 to 13 per cent in 2022-23.

The rise in employment in low-to-middle income families has been larger among women than among men: just under half (47 per cent) of women in low-to-middle income families worked in 1996-97, but this had risen to nearly 6-in-10 (59 per cent) by the eve of the pandemic. This reflects broader societal changes, as well as an increase in labour supply at older ages as the state-pension age for women was increased.

Higher employment means labour income has become an even more vital source of income for poorer families: by 2019-20, income from employment made up £7 in every £10 of low-to-middle income gross household incomes, up from just over £6 in 1994-95. Over the same period, benefit income fell from £3 in every £10, to just £2, in part reflecting the retrenchment of the tax credits and social security system in the 2010s.

Part of the reason for the rise in female employment among low-to-middle income families, has been a fall in the number looking after children at home. Indeed, the proportion of women who say they’re economically inactive for this reason fell from more than 1-in-5 (21 per cent) in 1996-97, to just 1-in-15 (7 per cent) in 2022-23. This reflects both that fewer woman are mothers but also that women with dependent children are more likely to be in paid work.

Set against that, there has been an alarming increase in the number of low-to-middle income families for which deteriorating health is affecting participation in the labour market. Health-related inactivity has become much more common among low-to-middle income families, with people in low-to-middle income families more than five times more likely than those in higher-income families to be not participating in the labour market because of ill health by 2022-23 (around 1-in-8 of those on low-to-middle income families were in that position). Strikingly, the proportion of those on lower incomes who are inactive due to ill health is now over three times larger than the proportion who are inactive because they are looking after children (13 per cent compared with 4 per cent); this is a significant change from 1994-95, when the rates were the same (11 per cent). The rise in the proportion of people with a disability was also larger for those in low-to-middle income families (from 4-in-20 to 6-in-20) than those in higher-income families (from 2-in20 to 3-in-20).

Another consequence of this deterioration in health has been an increase in the number of poorer families who are providing care for other adults. Over the past three decades, low-to-middle income families have consistently been more likely than higher-income families to have such caregiving responsibilities. 1-in-8 (12 per cent) of those in a low-tomiddle income family care for an ill, disabled or elderly adult, compared to just 8 per cent for higher-income families. This difference has become more pronounced since 2009, with a 11 per cent increase in the number of adult carers among these families, compared with a fall among richer families. By 2022, 2.6 million adults in low-to-middle income families were providing care for five or more hours a week.

Over the past two decades, average house prices have surged from around five-times average earnings, to over eight-times, making home ownership increasingly unattainable for many low-to-middle income families. As a result, the proportion of low-to-middle income families owning their own home fell from a peak of around 4-in-10 in 2000-01 to 3-in-10 in 2022-23. This means more low-to-middle income families now rely on the private-rented sector, with the proportion of such families renting privately rising from 18 per cent to 29 per cent between 1994-95 and 2022-23. These changing housing tenure patterns have meant that the overall housing-cost-to-income ratio for low-to-middle income families has not fallen significantly since 1994-95, despite the cost of both renting and paying off a mortgage rising more slowly than average incomes. But housing costs alone do not tell the full story. The private-rented sector has left many low-to-middle income families facing much lower-quality accommodation: by 2022-23, around 8 per cent of such households faced overcrowding, over double the proportion of higher-income households.

The shift to the higher-cost private rental sector has left low-to-middle income families in a more financially precarious position. The amount such families spend on essentials – that is, food, non-alcohol drinks, fuel, clothing, transport and rent – has been rising since the turn of the century, increasing from around half of all spending to around £3 in every £5 by 2022-23. Nearly £1 of every £5 (19 per cent) goes on rent. This limits the ability of such families to reduce their outgoings in the face of a fall in income, or to enjoy more discretionary spending on leisure or durable goods.

In the years after the financial crisis, household wealth grew rapidly, mainly reflecting asset-price rises for those lucky enough to hold housing and pensions. The average net family wealth per adult for those in low-to-middle income households increased from £97,000 in 2010-12 to £157,000 in 2018-20.

But as household wealth is concentrated among richer families, higher asset prices mean larger gaps in the absolute levels of wealth. The inflation-adjusted gap between the average wealth per adult of a family in the richest tenth and a family in the fifth decile had increased from £1 million in 2010-12to £1.4 million by 2020. The recent rise in interest rates has wiped out some of these wealth gains, for example average pension wealth among low-income families is estimated to have fallen by nearly a quarter in real terms since 2018-20.

Meanwhile holdings of unsecured debt were, on average, pretty stable in the run up to the pandemic, even falling slightly in 2018-20 for low-to-middle income families. This continues a pattern of falling consumer debt since the mid-2000s. Despite the pressures brought on by the pandemic and cost of living crisis, debt has continued to decrease: by 2021 consumer-debt fell to its lowest level as a proportion of income since records began in 1999. Survey data suggests that the drop in outstanding balances has been largest for poorer households.

But this lack of growth in unsecured debt does not mean all is well. Part of the reason consumer debt has not risen in recent years is that lenders have made it harder to access credit. And debt problems appear to be changing in nature, rather than disappearing.

By October 2023, the proportion of low-to-middle income families that were behind on one or more priority bills – such as utilities or council tax – was more than 60 per cent higher than for higher-income families (22 per cent compared with 14 per cent). Ofgem data indicates that, in Q1 2024, the total financial value of customer debt and arrears reached its highest level since records began, and continues to rise.

At the same time, many low-to-middle income families still have very thin financial buffers. In 2018-20, a typical low-to-middle income family had just £990 in accessible savings, around a sixth of the amount held by a typical higher-income family. This low level of readily-accessible savings for the typical low-to-middle income family has barely increased since 2010-12, the aftermath of the financial crisis. And by October 2023, more than 2-in-5 families (43 per cent) in the bottom half of the income distribution had less than £1,000 in savings, more than twice the proportion of families in the top half of the income distribution (21 per cent).

Despite positive developments, such as increases in employment and improvements in family finances, the past 20 years have been disappointing from the perspective of reducing hardship and delivering consistent improvements in living standards. This is the difficult economic reality facing the poorer half of the population as the new Government sets out on an ambitious agenda to deliver broad-based improvements in living standards. This paper marks the start of Unsung Britain, a one-year programme of work which aims to shed light on the circumstances and experience of low-to-middle income families, with the aim of setting an agenda for improving the living standards of the poorer half of Britain.