Income growth plummets to £140 a year

Britain’s “great living standards slowdown” has left typical family incomes growing by just £140 a year since 2010, according to a think tank.

The financial crisis, Covid-19 and double-digit inflation has meant disposable incomes have grown by 0.5pc a year, or £140 annually on average, in the 14 years since 2009, the Resolution Foundation said.

The Hard Times research, funded by the Nuffield Foundation, combined Department for Work and Pensions figures with data on jobs, pay and housing costs.

It found incomes have grown by 7pc over the 14-year period, while income growth over the 14 years prior to 2009-10 stood at 38pc.

The think tank said restarting the level of income growth families enjoyed before the financial crisis is a test by which the next Parliament should be judged.

Lalitha Try, an economist at the Resolution Foundation, said: “Britain is finally emerging from the cost-of-living crisis.

“But the bigger backdrop is a living standards slowdown that has left typical household incomes growing by just £140 a year since 2010.

“While global economic shocks have been a major factor, Britain’s recent record is poor compared to both its own history and many of our European neighbours.

“What little income growth Britain has experienced over the past 14 years has been driven primarily by rising employment, which has benefited poorer households the most.

“Britain will need to reverse its dire record on productivity growth, and repeat its 2010s success on jobs growth, if the country is to enjoy a long-overdue return to rising living standards over the next Parliament.”

The warning comes as the number of people in the UK paying the top rate of income tax is expected to surpass one million for the first time this year, as a prolonged freeze in thresholds and wage inflation boosts the state’s coffers.

Frozen income tax thresholds means the number of people paying the 45pc levy on earnings has more than doubled in the past three years, from 520,000 in 2021-22, the year before thresholds began to be frozen.

According to figures published by HM Revenue & Customs on Thursday, the number of higher rate taxpayers – who pay tax at 40pc on earnings – is expected to rise to 6.3 million this year, up from 4.4 million in 2021-22.

Meanwhile, the number of pensioners paying tax has risen to 42pc under the Tories.

Data published on Thursday by HM Revenue and Customs on Wednesday revealed that the number of people over pension age paying income tax is expected to hit a record 8.5m in 2024-25 – a rise of 660,000 year-on-year.

It means that during the Tories’ 14 years in office, an extra 2.5 million pensioners have been dragged into the tax net.

Laura Suter, director of personal finance at investment platform AJ Bell, said: “The frozen allowances had led to a huge jump in the tax take for the Government.”

Since April 2022, the Government has frozen several allowances and tax thresholds, rather than raising them in line with inflation, and plans to keep them unchanged until April 2028.

Labour has promised not to lift income tax or national insurance if it wins the general election next week, while the Conservatives have pledged to abolish the main rate of self-employed national insurance in the next parliament.

But neither of the main parties have said they will reverse the personal income tax threshold freezes, which both hope will continue to expand the tax take and offset some of their manifesto spending pledges.