Years of wage stagnation have cost the average UK worker £10,700 a year in lost pay growth, a report has claimed.
Research by the Resolution Foundation and the Centre for Economic Performance at the London School of Economics has found that nine million younger workers have never worked in an economy with sustained pay growth.
The poorest households are now around 27% (£4,300) worse off than their French and German counterparts, while middle-income households are 20% poorer.
It states that the cost of living crisis is an immediate issue, with household incomes not expected to reach their pre-cost-of-living crisis peak until 2027 at the earliest, but claims that Britons have been living with stagnant wages for the past 15 years, and high inequality has been a problem for much longer.
The income per person in the richest local authority – Kensington and Chelsea (£52,500) – was 4.5 times that of the poorest – Nottingham (£11,700) – in 2019, the Ending Stagnation report says.
It states that the transition to net zero should be seen as an opportunity, despite warnings about large-scale job losses. For example, 24% of people working in emissions-intensive jobs are large goods vehicle drivers, whose jobs will not disappear as vehicles become greener.
Wage stagnation
Average pay settlement returns to 6%
The report makes the case for a new economic strategy; one where the UK recognises it is a “broad-based services economy, built on successful musicians and architects as well as bankers”.
It says: “We’re about ICT, education, culture and marketing, as well as finance (whose fraction of total exports fell from 12 per cent in 2009 to 9 per cent in 2022). No one celebrates it, but the UK is the second largest exporter of services in the world. And our services specialism does not lie behind our recent underperformance: on average, services-led economies tend to be richer than manufacturing-driven ones.”
“Second cities”, Birmingham and Greater Manchester require more investment in public transport and housing to attract advanced companies and skilled workers, it says, and it suggests there needs to be more pressure on companies to invest for the long term via pension fund consolidation and putting more workers on boards.
Higher minimum standards around advanced notice for shift workers and statutory sick pay are also recommended.
There is no excuse for fatalism. Having fallen so far behind, we now have a huge advantage: catch-up potential.” – Torsten Bell, Resolution Foundation
Torsten Bell, 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.
“There is no excuse for fatalism. Having fallen so far behind, we now have a huge advantage: catch-up potential. Closing the gap with peers like Australia, France and Germany would deliver huge living standards gains, with typical households over £8,000 better off. That is a huge prize for a Britain that embraces a new economic strategy and is, in many ways, more normal.”
The report is part of the Economy 2030 Inquiry series, which is funded by the Nuffield Foundation and looks at how organisations and government can navigate what they have termed a “decisive decade” for Britain following Brexit and the Covid-19 pandemic.
Stephen Machin, professor of economics at the London School of Economics and director of the Centre for Economic Performance, said: “For decades, the UK has felt the effects of high inequality, hindered growth and economic stagnation. But this can change – the Economy 2030 Inquiry has been a path-breaking research venture that has produced robust and credible evidence, leading to a policy structure that can improve outcomes. The legacy of the inquiry needs to be a UK economy that delivers growth, and better, less unequal, standards of living in the rest of the decade and beyond.”
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