The UK’s squeezed bottom, charted

The Resolution Foundation has published its annual look at UK standards of living, and what a brightly coloured chartfest of post-recession misery it is indeed.

It’s an attempt to provide an accurate picture of income distribution, addressing some flaws in the official statistics. But the central message is that not just the middle, but everyone outside the top 1o per cent has seen their share of economic gains squeezed.

Looking at the Family Resources Survey for instance — which Resolution says is the best measure of UK household incomes — the average household income fell 4 to 5 per cent between 2008 and 2011.

We’ll get to some more of the charts in a second, but there is an economic concern here as well as a political battle over the cost of living.

Weak incomes are worrying because the recovery is so far built on spending…

Recent trends in household incomes raise concerns about the day to day pressures facing Britain’s households. But they also raise wider economic questions about the sustainability and stability of the recovery. As Figure 4 shows, the recent growth in GDP has come mainly from consumer spending. This is similar to past recessions, after which the engine of household spending has always restarted first, restoring economic momentum. Business investment has followed soon after. The difference this time around, so far at least, is that business investment has remained stagnant—something that was not the case at this point after the 1980s or 1990s recessions. Today’s nascent recovery is flying on the single engine of household spending power.

Or as they put it graphically:

It is hard to talk about this though, without mentioning inequality. The economy has grown, but the share taken by the top 10 per cent of earners has grown over the last two decades. The top 10 per cent receive a third of all UK income, almost twice that of the entire bottom 50 per cent.

Or if you prefer to think about wealth in terms of net assets, only the top fifth of the UK population got any richer between 2005 and 2013.

Meanwhile, the median annual wage for the UK of £21,900 is only 5 per cent above its 1998-99 level, in real terms:

There are many more good charts in the report itself, which has plenty of good analysis around the nature of the economy’s growth. Inequality has not just grown in population terms, but geographically as well, with the South East again taking a larger share of economic growth that its contribution might suggest.

The distribution of income is also interesting in the context of the UK debate, and the question of defining who we might be talking about when it comes to the middle or, dare we say, the middle class.

In the US the middle class has a blue-collar connotation, whereas in the UK it seems to refer to the rich but not quite richest section of society.

For instance, while both might be seen as middle class signifiers, the BBC’s Radio 4 claims a weekly audience of just under 11m, or about a fifth of the UK population, while a smaller segment of the latter (about 7 or 8 per cent) were educated at fee paying schools.

Taking the official ONS data, we might say that a broad middle section of the UK is the 4th through 7th deciles of households, so excluding the bottom and top 30 per cent. To be in that range is to have a gross household income somewhere between £20,000 and £40,000 – the average of the 4th decile was £21,676 in 2011/12, and for the 7th decile it was £38,763.

So in terms of household disposable income, after taxes and benefits, the UK middle lives on somewhere between £18,000 and £30,000.

Resolution breaks this down graphically, and for the context of the debate around banker pay and the impact of bank behaviour on the rest of the country, your eye might be drawn to the far right. Out of 26m households, there are only 160,000 earning more than £200,000 each year, the top 0.6 per cent.

Or to put it another way: to be in that top 10 per cent, which takes a third of all UK income each year, requires your household to have a post-tax income of just £48,496.

Related Links:
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Why rate hike talk is premature in the UK – FT Alphaville