The UK’s stagnant standard of living poses a challenge for Jeremy Hunt

British living standards have lagged behind other developed countries since the financial crisis, underscoring the scale of the challenge for Chancellor Jeremy Hunt after he used his budget to promise measures to make Britain one of the “wealthiest” nations in the world.

The Office for Budget Responsibility forecasts that real per capita income for UK households in 2027-28 will still be below pre-pandemic levels, suggesting Brits risk little improvement in theirs over the next 20 years to experience living standards.

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

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

Average real household income in the UK has been broadly unchanged since 2007, just before the banking crisis, according to data from the Office for National Statistics.

You see a snapshot of an interactive graphic. This is most likely because you are offline or JavaScript is disabled in your browser.

Household income per capita rose by 20 percent in OECD countries between the first quarter of 2007 and the third quarter of 2022, but by just 6 percent in the UK, figures from the Paris-based international organization show.

“We are in the midst of a decade of little income growth, 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 capita growth among G7 countries after Italy since the financial crisis, OECD data show. Per capita growth in UK manufacturing was half that of the US and EU.

And inflation-adjusted UK wages, which had risen 23 per cent in the eight years to 2008, fell 5 per cent in the following eight years, according to the ONS.

By 2021, UK real wages had risen just 4 per cent from 2007, placing the country 28th out of 34 countries in an OECD ranking by income growth. In comparison, real wages rose 20 percent in the US and 16 percent in Germany.

You see a snapshot of an interactive graphic. This is most likely because you are offline or JavaScript is disabled in your browser.

Less affluent households in the UK have suffered the most from the pressure on living standards following the banking crisis, with life expectancy falling, 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 2011-2013 and 2018-2020, according to ONS statistics.

Life expectancy “has slowed down, particularly for people on lower incomes,” said Jonathan Portes, professor of economics and public policy at King’s College London.

You see a snapshot of an interactive graphic. This is most likely because you are offline or JavaScript is disabled in your browser.

The lack of productivity growth in the UK since the financial crisis is to blame for the stagnation in living standards, analysts say.

“The only factor explaining the poor performance of UK GDP per capita, real wages and household real 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 several reasons for the UK’s weak productivity growth – or slowing output per hour worked – including the decline in the financial services industry since the banking crisis and stagnant business investment since the Brexit referendum.

Emily Fry, economist at the Resolution Foundation, said: “Even if business investment starts growing again, we will still have lost about seven years of capital spending because of uncertainty.”

Fry said that slow productivity growth since the financial crisis “was really the reason for some of our weaker living standards over the last 15 years”.

According to Saleheen, Britain was on the verge of productivity growth until the mid-2000s, when the country caught up with the US, France and Germany, but almost stagnated after the financial crisis. In that time, Britain has gone from “hero to zero,” she added.

You see a snapshot of an interactive graphic. This is most likely because you are offline or JavaScript is disabled in your browser.

Several economists said the measures presented by Hunt in his budget on Wednesday would not be enough to significantly improve living standards in the UK.

A key initiative by the chancellor was a business investment incentive program that would allow companies to write off 100 percent of their capital expenditures against taxable profits.

The capital grant scheme is set to last three years and cost around £9billion a year, although Hunt said he would like to make the arrangements permanent “once we can do so responsibly”.

Johnson said the “government needs to learn that stability and a consistent long-term strategy are essential for companies looking to invest and thereby securing better living standards”.

Ryan Shorthouse, chief executive of Bright Blue, another think tank, said the budget suggests “economic growth and living standards will remain subdued for the foreseeable future”.