Households getting poorer as Britain falls behind rivals on living standards


Low growth and inequality have left British households £8,800 worse off than their counterparts in other wealthy countries, research has found.

Living standards in the UK lag those in Australia, Canada, France, Germany and the Netherlands, with low and middle-income households affected most severely, according to analysis by the Resolution Foundation think tank and the London School of Economics as part of the Economy 2030 Inquiry series of reports on the future of the economy. The average UK household is said to be 21 per cent poorer than in these countries.

Much of Britain’s failure to keep up with its European peers is down to its relatively slow productivity growth. A rise in productivity across the economy means that workers can generate greater output per hour of labour, which typically leads to a rise in wages and, in theory, economic growth.

The UK had begun to reverse its trend for low productivity, having almost caught up with the economies of France and Germany before the financial crisis threw progress off course. The productivity gap between the countries has almost tripled since 2008, which represents a loss of £3,700 in income per person over the period.

Productivity grew by 0.4 per cent a year in the UK in the 12 years after the financial crisis — less than half the rate of the 25 richest Organisation for Economic Co-operation and Development countries, which averaged 0.9 per cent.

The crisis also hit wages, which were growing by an average of 33 per cent each decade until 2007. Since then, growth in real pay — income adjusted for inflation — has declined, amounting to a fall in living standards.

However, the pain is not shared. The top 10 per cent of households in the UK are richer than those in many other European countries. Those further down the earnings scale have borne the brunt of slow economic growth and weak gains in productivity.

Middle-income households in the UK are 9 per cent poorer than their French counterparts, and the poorest fifth of are more than 20 per cent poorer than in France and Germany.

Researchers at the Resolution Foundation said that Britain was not on track to turn around its fortunes because policymakers were not “serious” about doing so, with no economic strategy that makes the most of the country’s specialism in delivering services, nor plans to “level up” the regions outside London on the scale that is required.

Runaway inflation in Britain has reached a 40-year high of 9.1 per cent and it is expected to reach 11 per cent, its highest in a generation. Meanwhile, GDP data from the Office for National Statistics tomorrow is set to show 0 per cent economic growth between April and May, marking a third consecutive month without expansion. The economy is expected to have registered its first quarterly decline since the start of 2021 in the three months to June.

In an uncertain economic climate, the government has struggled to encourage companies to make the most of schemes such as its “superdeduction” tax break on investments in plant and machinery. Brexit, which has increased the costs and bureaucracy involved in selling to the UK’s biggest trading partners, has exacerbated the problems of low growth in investment in tech and infrastructure that contributed to slow productivity growth in recent years.

Torsten Bell, chief executive of the Resolution Foundation, said Britain had “huge economic and cultural strengths”, but “those strengths are not being built on, with the recent record of low growth leaving Britain trailing behind its peers. We must turn this around, but we are not on track to do so. We underestimate the scale of our relative decline and are far from serious about the nature of our economy or the scale of change required to make a difference. This has to change.”

Stephen Machin, director of the Centre for Economic Performance at the London School of Economics, said: “High levels of inequality, real wage stagnation and flatlining productivity have characterised the . . . UK economy for a long time.”





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