Subdued real wage growth means squeezed Britain faces a decade of slow recovery in living standards

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Subdued real wage growth means squeezed Britain faces a decade of slow recovery in living standards

Britain’s low to middle income families can't expect their living standards to return to pre-recession levels for another decade, the Resolution Foundation warns today.

The prolonged economic downturn means that this large swathe of the population is likely to face a permanent hit to their expected levels of prosperity, as it will be hard for them to fully recover the ground that has been lost over recent years.

• The report shows that if the typical earnings for families on low to middle incomes rise by an average of 1.1% a year above inflation – which should be achievable by historical standards – then their annual earnings would recover to £22,000 by 2023, the equivalent of where they stood in 2008.
• However, without the prolonged downturn since 2008 their typical earnings might now be expected to stand at £27,500; to reach that level over the next decade would require annual real earnings growth of 3.3% which appears unattainable based on current projections and past experience.
• The Office for Budget Responsibility forecasts that average real earnings will continue to fall into 2014 at the same time as support from tax credits and benefits is due to decline.

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The Resolution Foundation says: “The report shows that the squeeze on the low to middle income group is not just a result of recent fiscal austerity but is much longer-term and deeper-seated. The struggle with stagnant wages, high levels of debt and a heavy reliance on rising tax-credits reaches back before the financial crisis. It represents a major challenge for all parties.”

The richest tenth of working age households take 33% of total income; while the richest 1% take 10%; and the entire poorest half receive just 18%, says the Resolution Foundation.

A final word

“There is a long road to travel just to get back to where living standards stood before the crisis – and the prospects of actually recovering the ground lost over recent years appear vanishingly thin. Every extra month of falling household incomes is harder to take than the last as household budgets get closer to the edge. As it has been more than four years since we’ve had steady growth, it is chilling to see that such a large section of the public don’t believe there will be economic growth before 2015, and no great surprise that so many people don’t expect to be better off in 2015 than they are now.” - Matthew Whittaker, senior economist at the Resolution Foundation and author of the report.

Want to know more?

Title: Squeezed Britain 2013, by Matthew Whittaker, Resolution Foundation, February 2013.

Availability: Download the report in PDF format at www.resolutionfoundation.org/publications/squeezed-britain-2013/.

The Resolution Foundation is an “independent policy and research organisation seeking to improve the lives of people on low to middle incomes”. For more information visit www.resolutionfoundation.org.