Living Standards 2026: Why Many Households Are Still Falling Behind

10th February 2026

Low-income families in Britain have endured two decades of unusually weak income growth.

Incomes for the poorer half of non-pensioner households - a group we refer to as ‘Unsung Britain' - have risen by an average of just 0.5 per cent a year since the mid-2000s, far below pre-financial crisis norms, despite rising employment among these families and a huge reduction in low pay.

Looking ahead, the outlook for living standards remains gloomy: the OBR expects average incomes to grow by only 0.3 per cent a year over the rest of the decade on average, even weaker than the income growth experienced over the past decade.

Against this backdrop, we present new forecasts of household-level disposable incomes, based on the economic assumptions used by the OBR and planned changes to taxes and benefits. Although the outlook for the decade is weak, the picture is much more positive over the coming year: we project that typical non-pensioner incomes will grow by 1.2 per cent in 2026-27, with much stronger gains of 4.7 per cent for families in Unsung Britain.

Above-inflation increases in Universal Credit and the removal of the two-child limit are set to drive much of this improvement, with families with children seeing the largest gains and relative child poverty falling materially over the year ahead. But this progress is unlikely to last: weak real wage growth, frozen tax thresholds and rising Council Tax and housing costs mean incomes are projected to stagnate again later in the decade.

Delivering sustained improvements will require action on three fronts: reviving productivity to support stronger pay growth; reforming the tax and benefits system so gains are broadly shared; and directly easing cost of living pressures, particularly relating to energy, housing and Council Tax.

Key findings
Living standards for the poorer half of non-pensioner families have grown unusually slowly for two decades, despite rising employment and falling low pay, leaving many households feeling hard done by.

There is a short-term boost to incomes in 2026-27 - particularly for lower-income families - driven by above-inflation benefit uprating and the removal of the two-child limit, with child poverty set to fall.

The broader outlook remains weak: sluggish real wage growth, frozen tax thresholds and rising council tax and housing costs means that incomes are likely to stagnate later in the decade.

Recommendations
Prioritise stronger productivity growth to support sustained real wage increases, recognising that long-run living standards improvements depend on strong earnings growth.

Address unfairness in the tax and benefits system to ensure gains are shared across the income distribution, by linking Local Housing Allowance for private renters to the actual rents faced, and by introducing a system of consistent and stable indexation of social security benefits under which both working-age benefits and the state pension are uprated in line with earnings.

Take direct action to ease cost of living pressures - particularly on energy bills and Council Tax - so that improvements in economic performance translate into tangible gains felt by families.

Read the full Resolution Foundation report HERE
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