North East England enjoyed biggest rise in living standards since start of the recession, study finds

The surprising findings suggest that the North-South divide which existed at the start of the downturn is no longer so clear cut

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People in the North East have enjoyed the biggest rise in living standards since the start of the recession, according to a new study.

The Resolution Foundation think tank also found that the East of England, which includes East Anglia, has seen a significant rise in household incomes since the 2007-08 financial year. In contrast, the South East (excluding London), the West Midlands and Northern Ireland have struggled to bounce back to pre-recession income levels.

The surprising findings suggest that the North-South divide which existed at the start of the downturn is no longer so clear cut.  According to the foundation, the new divide is between pensioners, whose incomes are 9.4 per cent above their pre-recession level, and working age households, who are 4.6 per cent worse off.

The 3.9 per cent rise in incomes in the North East since 2007-08 –worth £794 a year-- is due largely to jobs growth in the region. It will delight the Conservatives and Liberal Democrats as they try to answer Ed Miliband’s central election claim about a “cost of living crisis”. The Tories insist that household incomes will rise above their 2010 level this year, but Labour argues that families are an average of £1,100 a year worse off since the Coalition was formed when benefit changes are taken into account. The foundation, an independent think tank, says the claims made by the two biggest parties are “wide of the mark” because the figures on which they are based are either flawed or out of date.

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Its report suggests that typical incomes rose after the crash and peaked in 2009-10, before falling until 2011-12.  They have since recovered and in 2014 were approaching their pre-downturn level. However, the scale and length of the living standards squeeze and the pace of recovery varies widely across the UK.

Incomes in the North East were the lowest in Britain on the eve of the recession. But the region’s employment rate is now 2.9 per cent higher than before the downturn and it had a relatively shallow pay squeeze –6.1 per cent between 2009 and 2014, lower than the UK-wide figure of 9.3 per cent.

However, all is not rosy in the North East. Despite its recovery in recent years, typical incomes there are still the third lowest of the 12 UK regions because it started from a lower base than other areas.

The South East, which enjoyed the highest median income of any region in the UK in 2007-08, has suffered the biggest fall in living standards since –down £920 (3.4 per cent).  Although the “jobs gap” between the region and the North East has narrowed, the South East still has the highest employment rate in the UK.

But London has done much better than the surrounding area, seeing the second strongest recovery after the South West since 2011-12. The capital has overtaken the South East by having the highest median income in the UK - £26,500 a year. London has experienced the second highest jobs growth after the North East but has also seen the second deepest pay squeeze.

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Typical incomes peaked in 2009-10, according to the study (PA)

“London has a younger population and higher turnover of jobs,” the foundation explained. “London has been quicker to grab new jobs recently than the neighbouring South East. London also had a lower employment rate, and higher unemployment, to start with so there are more people wanting to join the workforce.”

Northern Ireland has dropped to bottom place in the household income league after a poor performance on jobs and the most severe pay squeeze in the UK, with typical wages falling by 13.4 per cent.

Matthew Whittaker, the foundation’s chief economist, said: “The fall and rise of living standards since the crash is a key election debate. But the experience has been felt very differently across different generations and parts of the UK.”

He added: “The UK entered the downturn with a sharp North-South divide, with typical household incomes in the South East almost a third higher than in the North East. Contrasting employment performances in the subsequent period has helped reduce that gap, but the mixed performance of other regions means that it would be wrong to conclude that the North-South divide is closing. The picture has become more complicated.”

Mr Whittaker said: “The stark generational divide means that many working age households in the North East will have experienced a tighter squeeze in living standards than pensioner households in Northern Ireland.”

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