Poorest Brits over 20% poorer than their French and German counterparts – and it’s getting worse

A "toxic combination" of low growth and high inequality has left incomes in Britain languishing well behind comparable countries.

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With terrible results for low and middle-income households, Britain has fallen behind comparable economies in Australia, Canada, France, Germany, and the Netherlands due to a “toxic combination” of poor growth and high inequality.

According to a significant new book published today by the Resolution Foundation and Centre for Economic Performance at the LSE, a new economic strategy attempting to overcome this failure must be serious about the degree of change necessary and go well beyond promises of tax cuts.

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The interim report of The Economy 2030 Inquiry, funded by the Nuffield Foundation, Stagnation Nation, brings together the findings of the 30 reports published so far for the Inquiry to outline the scale of the economic challenge Britain will face over the next decade.

The analysis emphasises that the nation is entering a key decade of economic upheaval in the 2020s amidst sluggish growth and worrying levels of inequality.

Having nearly caught up with the economies of France and Germany from the 1990s to the middle of the 2000s, the UK’s productivity gap with them has virtually quadrupled from 6% to 16% since 2008 – equal to an additional £3,700 in lost production per person.

Moreover, despite comments that GDP is irrelevant, the data demonstrates how noticeable low growth has been in people’s paychecks.

Prior to the financial crisis, pay growth averaged 33 percent per decade. Since then, real wage growth has negative, and eight million young workers have never seen a prolonged period of growing real earnings.

The combination of Britain’s weak growth during the past 15 years and its high inequality over the past four decades has become toxic for low and middle-income households, the report says.

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While the wealthiest 10% of British households are richer than those in many other European countries, middle-income British households are not: they are 9% poorer than their French counterparts, and the poorest 20% of British households are now over 20% poorer than their French and German counterparts.

The report suggests that if the UK had the average income and inequality levels of these counties, normal household incomes would be a third higher (£8,800) and those of the lowest 40% higher.

Torsten Bell, Chief Executive of the Resolution Foundation, said: “Britain is a rich country, with huge economic and cultural strengths. But those strengths are not being built on with the recent record of low growth leaving Britain trailing behind its peers.

“This forms a toxic combination with the UK’s high inequality, leaving low and middle-income households far poorer than their counterparts in similar countries.

“We must turn this around, but we are not on track to do so. We underestimate the scale of our relative decline and are far from serious about the nature of our economy or the scale of change required to make a difference. This has to change.”

Stephen Machin, Director of the Centre for Economic Performance at the LSE, said: “High levels of inequality, real wage stagnation and flatlining productivity have characterised the evolution of the UK economy for a long time.

“The Economy 2030 Inquiry has presented new evidence on this and on how and why the economy has got into this state. The Inquiry argues that it is vital to design and implement better economic policy to get us out of this and enable a shift to a place where inclusive growth is achievable.”

Alex Beer, Welfare Programme Head at the Nuffield Foundation said: “As a result of a lack of meaningful improvements to living standards since the mid-2000s and high levels of income inequality, lower-income households in Britain have little resilience in the face of the cost of living crisis.

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“People are worried about getting by, cuts to public services and a lack of quality jobs. To improve people’s lives, government must reconsider and reframe their approach to the UK economy.

“By identifying and responding to the economic challenges ahead, and by putting the consideration of people, places and firms at its heart, the Economy 2030 Inquiry has the potential to help make this happen.”

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