Household incomes in the UK have tripled since 1961, averaging 1.9% growth per year. However, growth has not been steady and incomes are falling for the poorest. Past drivers of income growth included productivity, wage growth, and declining housing costs, but these are no longer sustaining growth. A new government will need to focus on raising productivity, supporting women's employment, and ensuring market incomes are distributed inclusively through benefits and taxes.

1. 1
Have household incomes grown?
@resfoundation

2. 2
The good news: average incomes have roughly tripled since 1961
Real (CPI-adjusted, 2018-19 prices) equivalised disposable household income (after housing costs)
Median income
growth has
averaged 1.9% a
year
@resfoundationNotes: 2018-19 values are nowcasts. UK from 2002-03, GB before.
Source: IFS, Living Standards, Inequality and Poverty; and RF nowcast

3. 3
Growth has not been steady
Annual real growth (CPI-adjusted) in median equivalised disposable household income
(after housing costs)
@resfoundationNotes: UK from 2002-03, GB before.
Source: RF analysis of DWP, Households Below Average Income; IFS, Living Standards, Inequality and Poverty; and RF nowcast

4. 4
Growth has not been steady
Annual real growth (CPI-adjusted) in median equivalised disposable household income
(after housing costs)
@resfoundationNotes: 2018-19 value is a nowcast. UK from 2002-03, GB before.
Source: RF analysis of DWP, Households Below Average Income; IFS, Living Standards, Inequality and Poverty; and RF nowcast

5. 5
Growth has not been steady
Annual real growth (CPI-adjusted) in median equivalised disposable household income
(after housing costs)
@resfoundationNotes: 2018-19 value is a nowcast. UK from 2002-03, GB before.
Source: RF analysis of DWP, Households Below Average Income; IFS, Living Standards, Inequality and Poverty; and RF nowcast
2-year
growth worse
than 1990s
recession

6. 6
Incomes are falling for the poorest
Average annual relative growth in real (CPI-adjusted) equivalised disposable household income
(after housing costs)
For the incomes
of the poorest
this period may
have been worse
than the crisis
@resfoundationNotes: UK. 2018-19 values are nowcasts. Smoothed using a five-percentile rolling average.
Source: RF analysis of DWP, Households Below Average Income; and RF nowcast

7. 7
What has driven income growth?
@resfoundation

8. 8
Pre-crisis, the norm was for productivity and wage growth to
drive living standards
Contribution to average annual growth in real GDP
@resfoundationNotes: UK.
Source: RF analysis of ONS, National Accounts

9. 9
But we’ve not had wage growth
Average weekly earnings, adjusted for CPIH inflation
@resfoundationNotes: UK.
Source: RF analysis of ONS

10. 10
Instead we’ve had: population growth
Contribution to average annual growth in real GDP
@resfoundationNotes: UK.
Source: RF analysis of ONS, National Accounts

11. 11
Instead we’ve had: female employment growth
Employment rate (16-64)
Aided by State
Pension Age
increases
@resfoundationNotes: UK.
Source: RF analysis of ONS, Labour Force Survey

12. 12
Instead we’ve had: a pause in falling hours
Average weekly hours of work
@resfoundationSource: ONS, Labour Force Survey; Bank of England, Millennium of data

13. 13
Instead we’ve had: good news for mortgagors
Average ratio of housing costs to disposable income (before housing costs)
Housing costs for
mortgagors have
fallen from 20%
of income to 11%
@resfoundationNotes: 2018-19 values are nowcasts. Mortgage costs here exclude capital repayments. Costs and incomes include housing benefit. UK from 2002-03, GB before.
Source: RF analysis of DWP, Households Below Average Income; and RF nowcast

14. @resfoundation
• Can’t continue with same scale of employment increases
 State Pension Age rises pausing after October 2020
 unemployment rate now 3.8%
• Can’t increase overall hours
 from 1907 to 2007 the average week declined by 1 hour every 4 years
 overemployment outweighs underemployment again
• Can’t slash interest rates again
 base rate now 0.75%, not 5%
 and fewer people have mortgages
14
Can we repeat those trends?

15. 15
What should a new PM or government
do to drive inclusive growth?
@resfoundation

16. @resfoundation
1) No substitute for sustained productivity growth:
Hourly productivity growth was 69% of GDP growth pre-crisis
2) Women are crucial to income growth:
Female employment income has grown since 2007-08, unlike male
employment income
16
Learn from history:

17. 17
3) Need to improve the distribution of market incomes, while
using benefits and taxes to ensure everyone gains from growth
Number of individuals living in relative poverty (after housing costs), 2017-18
Parents and
dependent
children make up
65% of ‘in-work’
poverty
@resfoundationNotes: UK.
Source: RF analysis of DWP, Households Below Average Income

18. @resfoundation
• Past 2 years were disastrous for living standards - weakest income growth
on record outside recessions
• Part of a broader squeeze post-crisis, driven by the drying up of the main
source of long-term living standards improvements: productivity-driven
wage growth
• In the absence of that we’ve sweated alternatives – higher employment,
hours and lower mortgage costs. These are reaching their limits
• So what is the to-do list for a new PM or government wanting to drive
inclusive growth?
• Higher productivity
• Women in work
• Predistribution AND redistribution
18
Conclusions