Low growth: The economy's biggest challenge
Growth has been slow since 2008. Low investment and policy uncertainty have slowed growth in productivity and so living standards have increased only modestly.

Household incomes have fallen since 2020. While steps have been taken to protect low-income households, more people are experiencing food and energy insecurity.
This article is part of the series Research in brief: Quick reads for the 2024 Parliament, produced for new Members of Parliament after the 2024 general election.
The rising cost of living and the covid-19 pandemic have caused household incomes to fall in real terms since 2020. While minimum wage increases and changes to benefits have protected low-income households to some extent, more households are experiencing food insecurity and energy debt than before. Universal Credit rollout and the expansion of free childcare continues.
Household incomes have been flat since the 2008 financial crisis, growing by less than 0.5% per year between 2007/08 and 2022/23.
According to data from the Department for Work and Pensions (DWP), since the covid-19 pandemic household incomes adjusted for inflation have fallen slightly, mostly because of high inflation: they were 1.6% lower in 2022/23 than in 2019/20.
Household income includes wages, benefits, income from investments and pensions.
Chart 1 shows that changes in state support affect households with lower incomes most. Changes in wages affect households at all levels but have a bigger impact on higher income households.
There was high wage growth at the end of 2023 and beginning of 2024 when workers received pay rises because of high inflation.
Overall however, there has been low growth in wages in the last decade, and real wages fell by around £6 a week between April 2019 and April 2023 because of covid-19 lockdowns and high inflation (see chart 2).
Lower-paid workers, though, have had a real increase in wages due to minimum wage rises (see chart 3). In April 2024, the National Living Wage (NLW) reached two thirds of the median wage. The percentage of workers in low pay is now at a record low according to the Resolution Foundation think tank.
The £20 per week Universal Credit (UC) uplift introduced during the pandemic protected the incomes of some benefit-claiming households.
The UC uplift ended in Autumn 2021, but in 2022/23 and 2023/24 additional cost of living payments provided further assistance.
Despite this support, the Institute for Fiscal Studies (IFS) think tank reports that real benefit income fell for the lowest-income third of the population when inflation was at its highest. It projects this effect will be reversed in 2024/25 if inflation continues to fall.
As shown in chart 4, working households that receive benefits could also have a real-terms increase in their income in 2024/25 because of benefit uprating keeping pace with inflation and changes to the minimum wage.
Universal Credit (UC) is replacing means-tested benefits and tax credits (known as legacy benefits) for working-age people. In February 2024, 5.6 million households in Great Britain were claiming UC. When it is fully rolled out, 7 million households could be claiming UC.
In 2022, the DWP began the final Move to Universal Credit stage, involving the managed migration of remaining legacy benefit claimants. Claimants are sent migration notices telling them they must claim UC within three months to continue to receive support. This includes people with health conditions or disabilities receiving income-related Employment and Support Allowance (ESA).
The DWP had planned to send migration notices to around 1 million households by the end of 2024/25, leaving around 800,000 ESA claimants to be migrated in 2028. But the DWP now plans to notify all ESA claimants by December 2025.
Households moving to UC through managed migration who are entitled to less than their existing legacy benefits may get top-up payments so they don’t lose out in cash terms when they move (known as transitional protection). To get these payments, a person must claim UC by a certain deadline.
Fewer UC claims have been made by those sent migration notices than expected. Almost all households sent a migration notice by March 2024 were only getting tax credits, and of those whose legacy claims were closed, 114,700 (29%) had not claimed UC.
The DWP believes that the overall ‘no-claim’ rate for those on other legacy benefits will be much lower at 4%. It is providing enhanced support to ESA and Income Support claimants approaching their deadline who haven’t claimed UC. The Public Accounts Committee warns that even a small proportion of people not claiming UC could still mean substantial numbers facing hardship.
Low-income households were particularly affected by the rising cost of living. As shown in data from the Office for National Statistics (ONS), inflation was driven by the price of essentials like energy and food, and low-income households spend a bigger proportion on essentials.
Low-income households were also already more likely to be buying the cheapest items, so were less able to switch to cheaper alternatives, and they were less likely to have savings.
This means that some households could no longer afford food and fell behind on bills as the cost of living rose.
As chart 5 shows, the number of people in ‘food insecure’ households rose to 7.2 million in the year 2022/23, an increase of 2.5 million people.
The Library briefing Poverty in the UK: Statistics explains other measures of poverty and how they’ve changed over time.
The ONS found that in May 2024, 30% of adults who pay energy bills found it difficult to afford them.
Citizens Advice, a debt advice charity, has reported increasing numbers of people asking for help with energy debt since 2020. In February 2024, it offered energy debt advice to 11,600 people, a record number.
The Resolution Foundation think tank notes that low-income households are going into energy debt instead of taking out loans.
One reason is that people are being rejected for credit: in March 2023 the foundation found that around 13% of the lowest-income fifth of families had been rejected in the previous year, compared with 5% of the highest income fifth.
The IFS has suggested that, while the majority of families do not say they are struggling with their childcare costs, they are a “significant burden” for a “significant minority”.
The Spring Budget 2023 announced that government-funded childcare for working families in England would be expanded:
Eligible three-and-four-year-olds from working families have been able to access 1,140 hours a year since 2017.
The government suggested the extension will save parents “an average of £6,900 per year” once fully rolled out.
While the expansion has been welcomed, local councils have raised concerns there may not be enough childcare places to meet the additional demand.
The government estimated an extra 85,000 childcare places and 40,000 childcare staff will be required by September 2025.
In April 2024, the National Audit Office said the government had met its milestones for the first stage of the expansion, but the later milestones “will be more challenging”.
For more explanation of the final stages of UC rollout, see the Library briefing Managed migration: Completing Universal Credit rollout.
The Office for Budget Responsibility, the independent watchdog of UK public finances, predicted in March 2024 that household income per person will not return to its pre-pandemic level until December 2025.
See the Library’s briefing on the Rising cost of living in the UK for more.
Authors: Brigid Francis-Devine, Rachael Harker, Steven Kennedy and David Foster
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