The living standards outlook for Britain is bleak - but policy can determine whether poorer families' incomes rise or fall

27th June 2025

The outlook for living standards across Britain is bleak, with typical incomes on track to grow by just 1 per cent (£300) over the second half of the decade. But a fair economic tailwind and the right policy interventions can transform this outlook - turning a period of falling incomes for poorer families into one of rising living standards, according to new Resolution Foundation analysis published on Thursday.

The Living Standards Outlook 2025, funded by Nationwide, considers a range of scenarios for British living standards across the income spectrum over the next five years. In the central projection - based on forecasts from the OBR and Bank of England, updated for recent outturns data - typical disposable incomes after housing costs grow by just 1 per cent between 2024-25 and 2029-30.

Lower-income families are on course to fare even worse, with incomes projected to fall by 1 per cent over the second half of the decade. The incomes of the richest half of the population are on track to rise by 1 per cent.

Housing tenure plays a key role in determining the outlook. Mortgagors are on track to see their incomes fall by 1 per cent, on average, as high interest rates continue to bear down on households coming off fixed-rate deals. Outright owners will be the tenure type to see the fastest boost to living standards, as their incomes grow by 3 per cent.

Pensioners are set to fare best of all, with their incomes forecast to rise by 5 per cent (£1,500), while families with children are set for no income growth.

This projection for weak income growth over the second half of the decade follows a rollercoaster first half, in which living standards were rocked by Covid-19 and the cost of living crisis. Britain then experienced a mini living standards boom, as incomes grew by an impressive 4 per cent (£1,300) in 2024-25.

This living standards bust, boom and bleak outlook could leave the 2020s as the first decade of the modern era to witness no improvement in disposable incomes across Britain. While median incomes grew by 18 per cent during the noughties, and by 9 per cent during the 2010s, the Foundation projects zero growth between 2019-20 and 2029-30.

The end of the 2020s is still a long way off, and the economic outlook can improve, with policy offering a helping hand.

Should the current period of strong wage growth continue and employment return to its previous peak, repeating the upside living standards surprise of the 2010s, typical income growth over the rest of the decade would triple to 3 per cent.

An uplift in economic growth would boost incomes for many British families, but it would not do enough to lift living standards for the poorest half of the country. There is more the Government can do to put money in people's pockets.

The report finds that if the Government were to end the two-child limit - which could be funded by a one year extension to the personal tax threshold freeze - average incomes for the poorest half of the country would rise by £200 instead of falling between now and the end of the decade, as 500,000 children are lifted out of poverty. The Government is right to prioritise growth to lift living standards, but a stronger economy would need to be combined with effective Government policy to boost living standards for all British households.

Adam Corlett, Principal Economist at the Resolution Foundation

"The living standards story of the decade so far has been bust and boom, with Covid-19 and a cost of living crisis followed by a much-needed recovery last year. But the rest of the decade looks bleak, with typical household incomes set to grow by just 1 per cent over the next five years.

"There are winners and losers within this weak outlook, with pensioner incomes set to grow by a healthy 5 per cent over the rest of the decade, while the poorest half of the population are set to see their incomes fall.

"But a stronger economy and the right policy interventions can brighten this outlook. Maintaining strong wage growth and returning to pre-pandemic employment levels would make middle-income Britain far better off, while ending the two-child limit can lift living standards for poorer families."

Key findings
We project a strong real income recovery in 2024-25, but despite this, overall, there has been a lost half-decade for income growth after 2019-20. And the effects of the cost of living crisis are still with us, with the prevalence of food insecurity in January 2025 still twice as high as it was in 2021.
We cast forward household income data from 2023-24 to each year up to 2029-30, based on official economic projections and planned tax and benefit policies, with four scenarios. In our central case, the typical non-pensioner income rises by just 1 per cent between 2024-25 and 2029-30 after accounting for inflation. This would mean zero growth over the whole decade.

Results are worse for lower-income households, with the poorer half in 2029-30 1 per cent worse off than in 2024-25 and 2 per cent below 2019-20 levels.

Those on very low incomes are projected to be fully 8 per cent (£1,000) worse off at the end of the decade compared to 2019-20.

The typical pensioner income is projected to rise by 5 per cent between 2024-25 and 2029-30, and that of outright owners by 4 per cent. In contrast, zero household income growth is projected for the median child and the typical mortgagor is projected to be 1 per cent worse off in 2029-30.

On current policies, the child poverty rate is projected to rise from 31 per cent in 2023-24 to 34 per cent by 2029-30. Meanwhile, the pensioner poverty rate was much lower at 16 per cent in 2023-24 and is not projected to rise.

More optimistic economic assumptions would improve the outlook, while removing policy headwinds for lower-income households would directly help.

Removing the two-child limit (funded through higher taxes) would move lower-income households from negative to positive growth over the next five years, and avoid a rise in child poverty.

Read the full report HERE
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