UK families £8,800 poorer than comparable countries

Driven by Britain’s “toxic combination of low growth and high inequality” has left it trailing behind comparable economies such as Australia, Canada, France, Germany and the Netherlands - leading to disastrous consequences for low and middle-income households. 

The findings come from stagnation nation, an interim report published by the think tank as part of the Economy 2030 Inquiry - funded by the Nuffield Foundation. This brings together the findings of the 30 reports published so far for the inquiry to set out the scale of the economic challenge Britain faces in the decade ahead. 

It notes the country is approaching a decisive decade of economic change in the 2020s against a backdrop of low growth and high inequality. 

Having almost caught up with the economies of France and Germany from the 1990s to the mid-2000s, the UK’s productivity gap with them has almost tripled since 2008 from six percent to 16 percent - equivalent to an extra £3,700 in lost output per person. 

And, despite claims that GDP doesn’t matter, the report shows just how visible low growth has been to people’s pay packets. Before the financial crisis, wages grew by an average of 33% a decade - since then, pay growth has fallen below zero, and eight million young workers have never experienced a period of sustained rising real wages. 

Britain’s slow growth over the past 15 years has combined with high inequality over the past four decades - posing a toxic combination for low and middle-income households. This is highlighted by the fact that, while the top 10% of households in Britain are richer than those in many other European countries, middle-income households are not. 

They are nine percent poorer than their counterparts in France, while the poorest fifth of households in Britain are now more than 20% poorer than their French and German equivalents. 

The research suggests the UK is currently not on track to turn this around because it’s “not serious” about the task of doing so as policymakers are not serious about the nature of the UK economy, firms investing, levelling up, fairness and taxes. 

The stagnation nation report does, however, say that just as the relative decline of the UK is underestimated by policymakers, so are the gains from turning things around. Comparing the country to a group of five comparable nations - these being Australia, Canada, France, Germany and the Netherlands - the report illustrates the catch-up potential. 

If the UK had the average income and inequality levels of these countries, typical household incomes in Britain would be a third higher - equivalent to £8,800 per household - and those of the poorest households 40% greater. 

The next phase of the Economy 2030 Inquiry will focus on the policies that can deliver greater fairer property across Britain - a task that all the main political parties, as well as the contender to lead them - need to focus on. 

Commenting on the report’s findings, the Resolution Foundation’s chief executive Torsten Bell said: “Britain is a rich country, with 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. This forms a toxic combination with the UK’s high inequality, leaving low- and middle-income households far poorer than their counterparts in similar countries.

“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.”

The Nuffield Foundation’s welfare programme head Alex Beer added: “As a result of a lack of meaningful improvements to living standards since the mid-2000s and high levels of income inequality, lower-income households in Britain have little resilience in the face of the cost of living crisis. 

“People are worried about getting by, cuts to public services and a lack of quality jobs. To improve people’s lives, the government must reconsider and reframe their approach to the UK economy. 

“By identifying and responding to the economic challenges ahead, and by putting the consideration of people, places and firms at its heart, the Economy 2030 Inquiry has the potential to help make this happen.”