British workers missing out on £10,700 a year as living standards fall

<span>Photograph: Peter Byrne/PA</span>
Photograph: Peter Byrne/PA

British workers are missing out on £10,700 a year after more than a decade of weak economic growth and high inequality, according to a major report warning that UK living standards are falling behind comparable rich nations.

In a damning report on the economy, the Resolution Foundation and the London School of Economics’ Centre for Economic Performance called for an urgent rethink of economic strategy after 15 years of relative decline.

It said a living standards gap worth £8,300 had opened up between typical households in Britain and their average peers in Australia, Canada, France, Germany and the Netherlands, and blamed a “toxic combination” of low growth and high inequality.

The result of a three-year inquiry by a group of the nation’s top academics, businesspeople and policymakers, the study warned that a generation of younger adults was being failed in particular – with 9 million having never worked in an economy with sustained average wage rises.

Rishi Sunak is preparing for a general election campaign next year with households continuing to come under strain from the cost of living crisis, and the Conservatives facing heavy fire over their economic record after 13 years in government.

With the government trailing Labour in the polls, the prime minister last month declared victory on his primary target to halve the UK’s inflation rate this year while hailing tax cuts in last month’s autumn statement to ease pressure on working families.

In a speech at the launch of the Resolution Foundation and LSE’s Economy 2030 Inquiry report on Monday, Keir Starmer will say that firing up Britain’s economy will have to “become Labour’s obsession” in government to reverse years of Tory mismanagement.

However, he will caution that an incoming Labour administration would face “huge constraints” on increasing spending on public services with government finances left in a precarious state by years of lacklustre economic performance hitting the exchequer.

“Anyone who expects an incoming Labour government to quickly turn on the spending taps is going to be disappointed,” Starmer will say.

Responding to the near 300-page report Ending Stagnation, Starmer will say the findings from the country’s leading economists confirm stark contrasts between 2010 and today. Arguing that “Britain’s standing is diminished,” he will say growth is stagnant and public services on their knees.

“Taxes are higher than at any time since the war, none of which was true in 2010. Never before has a British government asked its people to pay so much for so little.”

Having pushed back against talk of Britain’s economic decline earlier this year, the chancellor, Jeremy Hunt, is expected to speak before Starmer’s address to the same launch event fresh from last month’s autumn statement.

A spokesperson for the Treasury said the Office for Budget Responsibility was forecasting the autumn statement to deliver the “largest boost to potential growth on record”, after the chancellor sought to blunt the highest levels of taxation since the second world war with cuts to national insurance contributions and support for business investment.

“We have halved the number of people on low pay with increases to the ‘national living wage’ and, thanks to above-inflation increases to tax allowances, we have also saved the average earner over £1,000 a year since 2010,” they said.

However, the Resolution Foundation and LSE’s report found that existing plans for reversing decline were “not serious” and had been founded in the belief that “‘world-beating’ rhetoric automatically translates into a ‘world-beating’ reality”.

Chaired by Minouche Shafik, a former Bank of England deputy governor, and Clive Cowdery, the insurance magnate and founder of the Resolution Foundation, the report warned that household incomes were not on track to reach the peak recorded before the cost of living crisis until 2027 at the earliest.

Finding that the UK had been catching up with more productive countries like France, Germany and the US during the 1990s and early 2000s, it said progress had gone into reverse since the 2008 financial crisis. If Britain could close its average income and inequality gaps with these countries, it said the typical household would be 25% (£8,300) better off, with income gains of 37% for the poorest families.

It said average wages after inflation is taken into account were no higher than before the banking collapse 15 years ago. If wages had continued to grow at their pre-2008 pace, it said the average wage today would be £43,000 rather than £32,300.

Highlighting a gap in performance with comparable rich nations, it said that poor households in Britain were now £4,300 worse off than their French and German counterparts, leaving them struggling to cope in the cost of living crisis.

However, while warning that the challenges faced by Britain were “huge”, it said they were not insurmountable. The report, funded by the Nuffield Foundation charity, said the country needed to focus on its services sector, prioritise public and private investment, expand Britain’s largest cities, and raise the number of opportunities for higher-quality jobs in every town.

Torsten Bell, the chief executive of the Resolution Foundation, said: “The task facing the UK is to urgently embark on a new path. A new economic strategy built not on nostalgia or wishful thinking but our actual strengths, along with honesty about the scale of change needed and the trade-offs involved. It’s time for Britain to start investing in our future, rather than living off our past.”