Brexit has contributed to far bigger fall in living standards than 1990s recession, research finds

Real household incomes have fallen by 0.5 per cent over past two years amid pound’s slide and welfare cuts

Olesya Dmitracova
Economics and Business Editor
Wednesday 17 July 2019 12:30
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Brexit MEPs cheer and slap table as new EU commision president Ursula von der Leyen mentions UK withdrawal

The Brexit vote coupled with austerity has hurt household incomes more than anything other than recessions in the past 60 years and has done even more damage than the economic slump of the early 1990s, research has found.

Typical household incomes have fallen by 0.5 per cent over the past two years compared with a rise of 0.3 per cent between 1991 and 1993, when the economy was going through and then recovering from recession, according to the annual Living Standards Audit by the Resolution Foundation.

The report dubs the latest period “Article 50 (so far)” in reference to the start of Britain’s withdrawal from the EU in March 2017.

“Brexit has dominated the political landscape over the last three years, and even now it remains unclear just what form the UK’s exit from the EU will take,” it said. “This uncertainty has already had a clear impact on growth and on living standards.”

It added: “High inflation following the post-referendum sterling devaluation led to another fall in real wages. At the same time, the benefit freeze and other welfare cuts substantially reduced the real value of working-age social security.”

The authors analysed changes in incomes since records began in 1961, accounting for inflation, for the number of people living in a household, and for benefits and taxes. Housing costs were also deducted to account for income differences between outright homeowners, mortgage holders and renters.

The recent drop in incomes forms part of a wider stagnation in living standards since the financial crisis, caused primarily by a severe slowdown in productivity growth, the Resolution Foundation said.

“Restoring this – via greater investment in skills and capital across the UK, and resolving Brexit uncertainty – should be a top priority for the next prime minister,” it added.

Rising output per hour accounted for two-thirds of the UK's overall economic growth before the financial crash, but just over a fifth of growth since then, the report noted. Population growth has replaced productivity gains as the engine of economic expansion since 2007.

Average household incomes have been propped up since then by more people entering work and a halt to a century-long decline in working hours.

The researchers also found that income inequality has “rocketed” over the past half-century and called on the next leader of the country to ensure a more equal distribution of income growth.

However, that is the opposite of what the ongoing leadership campaign has focused on, they said – in apparent criticism of Boris Johnson, the frontrunner, who has promised to raise the threshold at which the higher rate of income tax kicks in. The move was widely criticised as handing more money to the better-off.

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