Stalling wage growth since 2008 costs £11,000 a year, says think tank

Fifteen years of stagnant wages cost UK workers £11,000 a year worse, according to a study shared exclusively with BBC Panorama.

The Resolution Foundation, which focuses on low- and middle-income households, explored what wages would be like today if the growth seen before the 2008 financial crisis had not abated.

We also found that the typical UK household income is even lower than in Germany. In 2008 there was a difference of over £500 a year, now he is £4,000.

But the Treasury Department says the economy is more resilient than many expected.

In his budget speech last week, Prime Minister Jeremy Hunt acknowledged that people’s finances are still under great pressure.

Wages have not kept up with rising costs in recent months. That means millions of Britons are getting wage cuts in effect.

But experts tell Panorama that the income problem goes back a long time.

The Resolution Foundation has calculated that if wages continued to rise as they did before the 2008 financial crisis, the average worker would earn £11,000 more a year than they do now, taking into account higher prices. Did.

An Ipsos poll of more than 6,000 adults also suggested that two-thirds of adults believe the economy will deteriorate over the next year.

In the budget document, Prime Minister Jeremy Hunt said inflation, which measures how prices change over time, “destroys the value of hard-earned wages”.

The government claims that the problem of living standards is the result of rising prices, which were pushed up by the war in Ukraine and the legacy of Covid.

But the roots of the cost of living crisis lie deeper.

In fact, what is known as ‘real wages’ has not seen sustained growth in 15 years.

Torsten Bell, CEO of the Resolution Foundation, said the wage stagnation over the past 15 years was “almost completely unprecedented.”

“Nobody living and working in the UK economy today has seen anything like this.

“This is definitely not what normal looks like. This is what failure looks like,” he added.

Xiaowei Xu, a senior research economist at the Institute of Finance think tank, described it as an “absolutely huge difference in living standards”, ending nearly 60 years of consistent growth.

According to an online survey of 6,189 adults conducted by Ipsos in February, one in four are struggling with their current income and nearly half are worried about their financial situation.

Stagnation in UK wages also means that the UK is not keeping up with its neighbors, as the Resolution Foundation’s comparison of typical UK and German household incomes shows.

Ros Atkins asks if we are getting the full story on the scale of the challenges facing the UK economy.

So what’s behind this slowdown in wage growth? Economists say the key to wage growth is productivity, a measure of how much workers produce.

“Productivity is how much a unit of labor or machine can produce,” says Dr. Mohamed El-Erian, former Deputy Trustee of the International Monetary Fund and Chancellor of Queen’s College Cambridge.

“The more you can produce, the more rewards you get.”

The UK is less productive than countries such as France and Germany, and the gap is growing.

Since the 2008 financial crisis, many countries have struggled to improve productivity. But the UK is suffering more than other countries.

The average annual growth rate is 0.4%, well below the average of developed countries. One of the reasons is the makeup of the UK economy.

Services such as finance, retail, hospitality and leisure make up 80% of the economy. Traditionally, it has been difficult to improve productivity in these areas.

But that’s not the only factor. Slow productivity growth is partly due to decades of low investment.

One generally accepted way to improve productivity is to increase investment.

New technologies, machines, buildings, and skills are all ways to increase what workers can achieve.

Panorama visited Callestick Farm in Cornwall. The farm recently invested over £1m to make ice cream as part of a new deal with Marks and Spencer.

New equipment, such as a spiral freezer that cools the ice cream faster, has tripled daily production. More ice cream per day means more ice cream sold.

This is a productivity boost, which in the long run can bring in more cash in a pay raise. This shows the difference an investment can make, whether in new equipment, infrastructure or training.

But the UK has historically not invested as much as it could.

Since 1997, capital investment has been worth only 16% of the economy’s total value on average.

This is the lowest percentage among developed countries at the time.

Cambridge University professor Diane Coyle told Panorama:

Since 2020, the government has increased its own investment, but corporate investment has not kept pace. Much of that story has happened since the Brexit referendum.

The government’s independent watchdog, the Office for Budget Responsibility, says business investment in the UK has “stalled” since the country decided to leave the European Union in 2016.

They say that while shocks such as the pandemic and rising energy prices are hitting investment everywhere, UK investment “continues to underperform relative to other G7 countries”. increase.

Since 2016, there have been five prime ministers, years of uncertainty over Brexit, and the financial turmoil of Liz Truss’ leadership, as has Covid and the war in Ukraine.

Tim Pitt, a former senior adviser to Conservative Prime Ministers Sajid Habid and Philip Hammond, said: “The number one thing any economist can do is to encourage business investment and thereby boost growth. I would say that the key is to have stability and certainty and strong institutions.” .

“We seem to have gone out of our way to undermine some of them over the last few years.”

The government says Brexit is a long-term plan. When he became prime minister, Rishi Sunak spoke of “building an economy that embraces the Brexit opportunity”.

That’s a question for the future, but business investment in the UK is currently low compared to other developed countries.

That’s been true for years and has been made short-term worse by Brexit.

In last week’s budget, the prime minister did not deny that the UK has issues that need to be addressed.

When Panorama submitted its findings to the government, a Treasury Department spokesman said the government was increasing incentives to invest, saying low unemployment and a plan to boost growth meant the country was on the right track. He pointed out that it was a sign that

But it remains to be seen whether the plan will match the scale of the problem.

Additional reporting by Sachin Croker and Lora Jones

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