New Income Statistics Suggest This Parliament Is On Course To Be The Worst For Living Standards On Record
22nd March 2024
the Department for Work and Pensions released the latest official statistics on household incomes, poverty and income inequality, covering April 2022 to March 2023. As well as being the first official data on household incomes since the cost of living crisis reached its peak, this is also the final release before the next general election, and so is a key source for measuring how material living standards have evolved during this parliament.
This parliament has been a tumultuous one for living standards. The COVID-19 pandemic and subsequent restrictions on economic activity led to huge disruption to the economy, with knock-on effects for people's earnings as many were furloughed or lost work. Just as the economy bounced back from the pandemic, the "cost of living crisis" hit, with inflation interrupting the recovery in real disposable income. Consequently, and in spite of the huge amount of government spending to support incomes during both crises, this parliament is on course to be the worst on record for growth in average incomes, with real incomes falling across the majority of the distribution, and average disposable income growth projected by the Office for Budget Responsibility (OBR) to remain low. Moreover, whilst these figures take account of average inflation, inflationary pressures since late 2021 have not hit everyone equally (Office for National Statistics, 2024a). Digging further into other indicators of material living standards suggests that the cost of living crisis has been even harder for low-income families than headline income statistics suggest.
Alongside these new official data, IFS has today launched its new living standards, poverty and inequality in the UK page, featuring interactive data visualisations which showcase over 60 years of data on incomes, poverty and inequality in the UK.
Related content - Key research, data and resources that show how and why living standards and poverty have changed since 1961
Living standards, poverty and inequality in the UK
New statistics show large increases in material deprivation and food insecurity during cost-of-living crisis, which headline poverty measures do not reflect
1. The cost-of-living crisis has resulted in a widespread fall in household incomes, despite the recovery in economic activity following the pandemic. Between 2021-22 and 2022-23, household income fell across all of the income distribution outside the top 20%, with a 0.5% decline at the median (middle). Measured after housing costs, median income fell by 1.5%, as rents on new lets and mortgage interest rates rose dramatically. These changes undo the recovery seen during the preceding year. As a result of the decline in incomes among poorer households, the absolute poverty rate (accounting for housing costs) rose by 0.8 percentage points to 18%.
2. Incomes fell or stagnated across the distribution between 2019-20 and 2022-23. Middle- and higher-income households have seen similar proportionate falls in income, with a 1.6% decline at the median and at the 80th percentile). Losses were smaller among poorer households, with incomes at the 20th percentile falling by 0.2%, meaning that income inequality has fallen. These figures look similar if we examine changes in incomes after deducting housing costs (with incomes falling by 1.3% at the median and 1.4% at the 80th percentile, and growing by 0.2% at the 20th percentile). That said, income growth still performed better than in the years following the 2008 financial crisis - when median income fell by more than 3%.
3. As a result, up to 2022–23, annual income growth in this parliament has been the weakest across a parliament since comparable records began in 1961 for the top two-thirds of the income distribution, and one of the worst for the bottom third. This comes on the back of poor income growth since the 2008 financial crisis. Between 2011–12 to 2019–20, median income grew by only 11.7%. Over the 15 years from 2007 to 2022, incomes grew by just 7.2% at the median, 9.9% at the 20th percentile and 3.9% at the 80th percentile.
4. The decline in household income seen over the parliament was mainly driven by a fall in workers' real earnings. These falls were particularly substantial among those in the middle of the income distribution. Temporary support schemes such as the universal energy rebate and cost of living payments partially offset this for middle income households, and (slightly) more than offset it for lower income households.
5. Although absolute poverty (accounting for housing costs) declined during the pandemic (thanks in part to the temporary £20 per week uplift to Universal Credit), it has now returned to around its pre-pandemic level (18%, or 12 million people). This is also largely true across different groups, with the child, in-work, and pensioner poverty rates all also roughly unchanged (at 25%, 14%, and 12% respectively). We do see a more notable increase in absolute poverty among private renters (1.4ppts, to 30%, or 200,000 more people) - perhaps not surprising given the rapid rise in rents for new lets, and the LHA freeze after 2019.
6. The limited change in official income poverty statistics up to 2022–23 likely masks the fact that rising prices have disproportionately affected certain groups. This is reflected by a substantial increase in material deprivation, a measure which attempts to capture how many households are unable to afford a range of basic items (such as heating the home). The rate of material deprivation (defined differently for different age groups) rose from 15% to 19% between 2019-20 and 2022-23, corresponding to an extra 2.8 million people, returning child and pensioner deprivation rates to the same level they were in 2014-15 (or 2010-11). The rate of food insecurity increased from 8% to 11% (2.1 million additional people), and the proportion unable to adequately heat their home increased from 4% to 11% (4.3 million additional people).
7. The rise in material deprivation is seen across every age group, housing tenure, work status, household composition, and region - but it is especially sharp for owner-occupiers and pensioners. That material deprivation gives a much bleaker picture than income poverty likely reflects the fact that the rise in inflation has been highest among more basic goods (such as energy and food). This can be seen in the even more dramatic increases in the share of individuals living in households with food insecurity, or unable to keep their home warm.
8. These patterns pose a huge challenge for any government looking to boost living standards in the coming years. This parliament has seen the double whammy of the pandemic and cost-of-living crisis, both of which had sharp effects on households' purchasing power. Though the cost-of-living crisis has begun to ease, forecasts by the OBR suggest average disposable income will still be lower at the next election than it was at the last, which would make this the first parliament for decades in which average disposable income has fallen.
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