Stagnant UK living standards expose challenge for Jeremy Hunt

UK living standards have lagged behind other industrialized countries since the financial crisis, highlighting the magnitude of the challenge for Chancellor Jeremy Hunt after he used his budget to promise measures to turn Britain into a of the “most prosperous” nations in the world.

The Office for Budgetary Responsibility predicts that UK real household income per person will remain below pre-pandemic levels in 2027-28, suggesting that Brits are at risk of seeing an improvement in their level. of life for 20 years.

Jumana Saleheen, chief economist at Vanguard Europe, said that in three key measures of living standards, household income, gross domestic product per capita and real wages, “we have seen stagnation over the last 15 years.”

“It’s growth, growth, growth until the global financial crisis and then stagnation,” he added.

The UK’s median real household income is virtually unchanged since 2007, just before the banking crisis, according to data from the Office for National Statistics.

Per capita household income in OECD countries rose 20 percent between the first quarter of 2007 and the third quarter of 2022, but only rose 6 percent in the UK, the organization’s figures show. International based in Paris.

“We are in the middle of a decade of barely rising revenue, with very weak growth for two full decades,” said Paul Johnson, director of the Institute for Fiscal Studies, a think tank.

Meanwhile, the UK has posted the second lowest GDP per head growth among the G7 countries after Italy since the financial crisis, OECD data shows. UK per capita output growth was half that of the US and EU.

And inflation-adjusted UK wages, having risen 23 percent in the eight years to 2008, fell 5 percent in the following eight years, according to the ONS.

By 2021, UK real wages have risen just 4 per cent since 2007, putting the country 28th out of 34 countries in an OECD ranking for earnings growth. That compares with a 20 percent increase in real wages in the US and a 16 percent increase in Germany.

Britain’s less well off households have suffered the most during the contraction in living standards following the banking crisis and have seen their life expectancy fall, according to economists.

Low-income households in the UK are now 22 per cent poorer than their counterparts in France, research by the Resolution Foundation, another think tank, has found.

For people living in the most deprived areas of England, average life expectancy fell by eight months for women and five months for men between the periods 2011 to 2013 and 2018 to 2020, according to ONS statistics.

Life expectancy “has slowed down, especially for people in the lowest income groups,” said Jonathan Portes, a professor of economics and public policy at King’s College London.

A lack of UK productivity growth since the financial crisis is to blame for stagnant living standards, analysts say.

“The only factor explaining the poor performance of UK GDP per head, real wages and real household disposable income is low productivity growth compared to the rest of the G7,” said Ashley Webb, economist at Capital Economics, a consultancy.

Economists said there were a number of reasons for the UK’s weak productivity growth, or slowdown in the pace of output per hour worked, including the decline of the financial services industry since the banking crisis and stagnant business investment. since the Brexit referendum.

Emily Fry, an economist at the Resolution Foundation, said that “even if business investment starts to grow again, we will have lost about seven years of capital spending due to uncertainty.”

Fry said slow productivity growth since the financial crisis “is really what’s been driving some of our weakest living standards in the last 15 years.”

Saleheen said the UK was on the frontier of productivity growth until the mid-2000s, when the country was catching up with the performance of the US, France and Germany, but slowed to almost a plateau after the financial crisis. During that time, the UK went from “hero to zero”, he added.

Several economists said the measures Hunt laid out in his budget on Wednesday would not be enough to significantly boost UK living standards.

A key initiative by the chancellor was a plan to boost business investment under which companies can write off 100 percent of their capital expenditures against taxable profits.

The capital allocations scheme will run for three years and cost around £9bn per year, although Hunt said he would like to make the arrangements permanent “as soon as we can do so responsibly”.

Johnson said that “the government needs to learn that stability and consistent long-term strategy are vital for companies looking to invest and therefore to ensure better standards of living.”

Ryan Shorthouse, chief executive of Bright Blue, another think tank, said the Budget suggested that “economic growth and living standards will remain stagnant for the foreseeable future.”