Report highlights UK’s return to inequality

A new report by The Resolution Foundation has warned that Britain is on course for biggest increase in inequality since those experienced under Thatcher’s government.

The report, Living Standards 2017, analyses the past, present and future outlook for living standards across Britain, and has found that a ‘squeeze on poorer households’ will see incomes fall and inequality rise, in the biggest seen since Margaret Thatcher’s time in Downing Street.

The Foundation pinpoint how the UK has experienced a ‘recent mini-boom in living standards’, with typical household incomes growing by over two per cent in both 2014/15 and 2015/16. However, that increase has ground to a halt.

Rising inflation and a plateauing of employment means that typical household income growth looks set to fall to 1.2 per cent this year, with the slowdown set to continues according to the OBR’s latest projections.

The report shows that the richest fifth of households are set to enjoy small incomes gains of around four per cent over the next four years, while incomes across the entire poorest half of households are set to fall by an average of three per cent, showing a reverse of the pay squeeze seen in the wake of the financial crisis.

The Foundation report that ’this increase is set to undo modest falls since the financial crisis and could leave levels of income inequality at a record high by the end of the Parliament’.

Torsten Bell, director of the Resolution Foundation, said: “Britain has enjoyed a welcome mini-boom in living standards in recent years. But that boom is slowing rapidly as inflation rises, productivity flatlines and employment growth slows.

“The squeeze in the wake of the financial crisis tended to hit richer households the most. But this time around it’s low and middle income families with kids who are set to be worst affected. This could leave Britain with the worst of both worlds on living standards – the weak income growth of the last parliament and rising inequality from the time Margaret Thatcher was in Downing Street.

“The Prime Minister’s focus on supporting just managing families is absolutely right if we are to avoid the next few years being like the 1980s without the feel-good factor.”

Adam Corlett, economic analyst at the Resolution Foundation, added: “The healthy growth in household incomes of recent years was driven by historically low inflation and fast-rising employment. But as these factors fall away the living standards picture of this parliament will turn from recovery to stagnation.

“Many of the key factors behind this latest stagnation in living standards, particularly inflation, lie outside the government’s control. But from reigniting employment growth to rethinking welfare policy, there is still plenty that the government can do to boost living standards over the Parliament.

“Pressing ahead with big minimum wage increases, and following through with the ambition shown in the government’s Green Paper on Industrial Strategy to spur a fresh productivity drive in low paying sectors, are also key.”