Real wage growth – the rate at which earnings increase after taking inflation into account – has been poor to non-existent in the UK since the 2008 recession. As the Treasury prepares to enact a range of policies to kick the labour market into gear, a new report has emerged revealing just how costly this lack of growth has been. The cost-of-living crisis has only made matters worse, particularly for public sector employees.
The lack of growth is thought to be at the core of many of the difficulties currently faced by the UK.
The same day Chancellor Jeremy Hunt revealed the contents of his “budget for growth”, the Office for Budget Responsibility (OBR) predicted that UK household income per person would still be below pre-pandemic levels in 2027-28 when taking inflation into account.
This harrowing prediction from the Government’s fiscal watchdog suggests Brits are unlikely to see any improvement in living standards for two decades.
Resolution Foundation has now found the average UK worker would be banking an extra £11,000 a year had pre-financial crisis wage growth rates kept up.
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The think tank points to the fact that wages have stagnated in real terms for the past 15 years, according to a report shared with BBC Panorama on Monday.
In the decade leading up to 2008, average disposable incomes increased by an average of 3.57 percent per year. In the decade after, they fell by an average of 0.15 percent, according to the Office for National Statistics (ONS).
After the recession ended in 2009, the British economy took a sluggish five years to recover but eventually came around. However, productivity – the amount of value generated by the average worker per hour – and wage growth still haven’t.
While some international peers suffered worse downturns, few have struggled as much as Britain to overcome its effects over the long term. A similar scenario is playing out in the aftermath of the pandemic, with the UK as the only G7 member with a smaller GDP than in 2019.
According to the OECD, household incomes across the group of 38 developed nations increased by 20 percent between 2007 and 2022, but only by six percent in the UK.
The report found typical household incomes in the UK are now £4,000 lower than those in Germany — a gulf that is eight times bigger than the £500 knockdown in 2008.
The effects of 2022’s energy crisis are only set to widen the gap even further going forward. In January, inflation came in at 9.2 percent in Germany and seven percent in France. The UK figure was 10.1 percent.
As a result, real wages fell by 3.2 percent over the whole of 2022, the biggest single-year drop since records began in 2000.
According to an analysis by the Trades Union Congress (TUC) working people lost £76 a month last year as a result of pay lagging behind inflation.
The body found that employees in key sectors were hit hardest of all, a lack of renegotiated pay deals seeing the Government lose them an average of £180 a month.
They found nurses’ real pay to have fallen £1,800 over the year, while paramedics and midwives are £2,400 out-of-pocket.
Last week, junior doctors went on strike with the British Medical Association (BMA) that represents them pointing to a roughly 30 percent reduction in real earnings since 2008.
