A sharp rise in tax payments and cuts to energy subsidies in the UK were to blame for a steep fall in household incomes during the first three months of the year, according to the Organisation for Economic Cooperation and Development (OECD).
In a review of its 38 member states, the OECD said the UK was in the bottom half of the income table after households faced a steeper rise in tax payments than their counterparts in the US, France and Germany.
Data revealed that “real” household incomes per capita (adjusted for inflation) had grown by 0.9% in the OECD in the first quarter of 2023, exceeding growth of 0.3% in real GDP per capita.
The Paris-based rich nations club said it was the third quarter in a row that real household income per capita had grown among its members and the fastest rise “since incomes were boosted by pandemic-related assistance programmes” in 2021.
Of the 21 countries for which data was available, 11 recorded an increase, while 10 recorded a fall, including the UK.
Incomes improved or deteriorated as much in line with government tax and spending programmes, many of them related to the pandemic or inflation crisis, as they did from wage rises.
The UK and Germany were among countries that spent most resources protecting household incomes with subsidy payments, while France and Italy supplemented income subsidies with caps on energy prices.
It meant household incomes grew in Italy and the US, but declined in Canada, France, Germany and the UK.
Canada recorded the largest drop (-2.2%) in real household income per capita, driven in part by cuts to social benefits introduced last year to offset rising prices.
In Germany, real GDP per capita and real household income per capita both fell for the second consecutive quarter, the OECD said.
German households were hit hard by the rise in gas and electricity prices last winter, and despite reducing consumption, suffered a 1% loss of income in real terms in the first quarter.
France reduced most of its energy-related subsidies in the first quarter, hitting household incomes by 0.5%. Italy kept many of its subsidies in place, protecting household incomes, which rose by 3.3%.
Real incomes fell 0.8% in the UK, mostly due to a steep rise in personal taxes paid in response to rising wages, spending on VATable goods, and wealth taxes, including inheritance tax.
The UK and French economies were flat during the first quarter, unlike the German economy, which contracted by 0.4% per capita.
Italy, which saw the largest increase in GDP per capita (up 0.7%) and fastest increase in real household incomes in the first quarter (up 3.3%) benefited from steep cuts in energy prices.
In the US, the OECD said a gain in real household income per capita of 1.7% was mainly due to a decrease in taxes payable after a rise in 2022 “due to increases in wages and salaries, deferred payment of 2020 taxes and strong capital gains”.
Among other OECD countries, Poland experienced strong growth in both real GDP per capita (3.9%) and real household income per capita (3.5%).
Large increases in real household income per capita were also recorded in Denmark (4.3%), Belgium (4.1%) and the Netherlands (2.6%).
