Typical incomes up £800 a year in north east since eve of downturn but still £900 lower in south east as regions recover at different rates

Households in the North East and East of England have seen the biggest rise in living standards since the start of the downturn, while Northern Ireland, the West Midlands and the South East have the most ground to make up, according to an analysis of household incomes published today (Thursday) by the independent think-tank the Resolution Foundation.

Typical weekly incomes in the UK initially rose after the crash and peaked in 2009-10, before falling until 2011-12. They have since recovered and in 2014 were approaching their pre-downturn level. But the size and length of the squeeze in living standards, as well as the pace of the subsequent recovery, varies greatly across the UK.

Typical incomes in the North East were the lowest in the UK on the eve of the downturn. However, the region has since experienced strong jobs growth – its employment rate is 2.9 per cent above its pre-recession level – and a comparatively shallow pay squeeze (real wages fell by 6.1 per cent between 2009 and 2014, compared to a UK figure of 9.3 per cent).

Together, this has led to household incomes rising by nearly 4 per cent since 2007-08. This increase means that typical households in the North East were £800 a year better off last year, compared to 2007-08. Despite this relatively strong performance, typical incomes in the North East remain the third lowest of the 12 regions and nations across the UK.

In contrast, Northern Ireland has experienced the biggest squeeze on living standards since the downturn of all regions and nations in the UK. Typical incomes fell by 6.7 per cent between 2007-08 and 2011-12. They have recovered relatively well since but were still 4 per cent – or £860 a year – below their pre-downturn level last year.

Northern Ireland’s position is explained by its poor jobs performance – its employment rate is still 2 per cent below its pre-downturn level – and the fact that it has experienced by far the biggest pay squeeze in the UK, with typical wages falling by 13.4 per cent. This means that it has fallen behind the North East and has the lowest median household income in the UK, followed by Wales.

Households in the South East, which in 2007-08 had the highest median income of any region of the UK, have experienced the biggest absolute fall in living standards since the downturn. Typical incomes in the region last year were 3.4 per cent – or £920 a year – below pre-downturn levels.

London – which has experienced the second strongest recovery in living standards since 2011-12 (after the South West) – has overtaken the South East to have the highest median household income in the UK at £26,500 a year. The capital has experienced the second strongest employment performance of any region since 2007-08, but has also experienced the second deepest pay squeeze – bringing its overall performance on incomes broadly in line with the UK average.

Resolution Foundation research has also found that the generational divide in living standards is even greater than regional differences. Typical incomes among pensioner households were 9.4 per cent above their pre-downturn level by the end of last year, while working age households were still 4.6 per cent down.

The think-tank says that official data on household incomes is either flawed (by including measures that households wouldn’t regard as income, such as imputed rents) or accurate but out of date (the latest figures from the ONS Family Resources Survey only go up to 2012-13). Its own analysis uses trends in employment and pay across different groups to bring this authoritative survey data up to date.

It warns that the absence of timely and accurate official data on living standards leaves the door open for claims and counter-claims on a key election issue that are wide of the mark.

Matthew Whittaker, Chief Economist at the Resolution Foundation, said:

“The fall and rise of living standards since the crash is a key election debate. But the experience has been felt very differently across different generations and parts of the UK.

“The UK entered the downturn with a sharp North-South divide, with typical household incomes in the South East almost a third higher than in the North East. Contrasting employment performances in the subsequent period has helped reduce that gap, but the mixed performance of other regions means that it would be wrong to conclude that the North-South divide is closing. The picture has become more complicated.

“The strong recent performance of the North East contrasts with much weaker recoveries in other low-income areas such as Northern Ireland and the West Midlands. Meanwhile the weak employment record of the South East looks very different to London.

“To add to the confusion, the stark generational divide means that many working age households in the North East will have experienced a tighter squeeze in living standards than pensioner households in Northern Ireland.

“The big variation in experiences between households means that voters will hear confusing messages on living standards that they may struggle to relate to.”

Ends

Changes in median weekly incomes since the downturn (RPIJ adjusted, 2013-14 prices)

All cash values are in 2013-14 prices