Big regional and generational divide on living standards as typical incomes approach pre-downturn levels

The great squeeze on living standards over the past seven years has been unevenly felt between generations and across different parts of the country, according to new analysis published today (Thursday) by the Resolution Foundation.

The Resolution Foundation analysis finds that typical household incomes are rising and are finally set to return to their pre-downturn level in 2015 (though they will still be 3 per cent below their 2010 peak). However the pace of recovery, and the point at which pre-crash living standards return, varies considerably by age and geographical area.

Having entered the downturn with the lowest median income of any region in the UK, the North East has subsequently experienced the biggest rise in living standards. Typical incomes across the region, which has seen the strongest employment and pay growth of any area of the UK since 2008, are now 4 per cent higher than before the downturn. The South West and East of England are the next best performing regions, with incomes currently 2 per cent above pre-crash levels.

In contrast, incomes in Northern Ireland, the West Midlands and the South East are still more than three per cent below their pre-downturn levels. The Foundation points to poor employment and pay performances in these regions as being key to their failure to restore pre-crash living standards.

The analysis also highlights a big generational divide in how living standards have changed since the downturn. The incomes of working age households fell by 6 per cent between 2007 and 2011, and have only recovered slightly since. Typical working age household incomes are still set to be 4 per cent below their pre-downturn level this year.

Pensioner households however experienced a very different recession. Their incomes rose by around 5 per cent between 2007 and 2011, and by nearly 10 per cent from 2007 to 2014.

The think-tank puts the better performance of pensioner households down to strong employment growth, a looser squeeze on wages – workers in their 20s experienced pay falls more than three times as deep as those aged 60+ ­– and the “triple lock” on the state pension along with the protection of other pensioner benefits, even as working-age support has been cut.

The analysis also shows that while the initial downturn tended to hit higher income households hardest, the recovery of the past two years has been concentrated in the middle of the distribution, with incomes among the poorest and richest households continuing to fall since 2012.

The Foundation notes that while median incomes are set to return to their pre-downturn level at some point this year, it will take far longer for wages to return to their pre-crash peak.

The think-tank warns that official data on household incomes is either flawed (by including non-household income) or accurate but long out of date (the latest figures from directly reported surveys of household income only go up to 2012-13). Its own analysis uses recent trends in employment and pay across different groups to bring this authoritative survey data up to date.

The absence of timely and accurate official data leaves the door open for claims and counter-claims to be made about the state of living standards that are wide of the mark, confusing, dated or all three, says the think-tank.

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

“After seven years, typical incomes are finally set to return to return to pre-crash levels this year. But with the downturn being felt very differently between generations and across parts of the UK, this break-even moment many not chime with many people’s experiences.

“While the economies of London and the South East have fared best since 2008, the biggest rise in living standards has come in the North East – albeit from a low base. A combination of healthy employment growth and a relatively shallow pay squeeze means that incomes across the region are 4 per cent higher than in 2007. In contrast, Northern Ireland, the West Midlands and the South East are still some way off a return to pre-crash living standards.

“This divide has played out across generations too. Pensioner incomes have grown steadily since 2007 and are now at a record high. However, working age households experienced a sharp drop in incomes between 2007 and 2001 and have recorded a very slow recovery since.

“Rising employment, falling inflation and a steady recovery in pay mean that the outlook for incomes in the coming year is positive. But the big variation in experiences between households – as well as the lack of accurate, timely official data – mean that voters will continue to hear confusing and even contradictory messages on living standards that many will struggle to relate to.”

Ends

Notes to Editors

The Resolution Foundation has published a short guide to living standards and the election. The 2 ½ minute animation explains what has happened to living standards in recent years, and compares a range of measures for assessing the current state of play. It can be viewed at https://www.youtube.com/watch?v=-BFVI_eSLGE&feature=youtu.be