Top 1% of households in UK fully recovered from financial crisis
The contrasting fortunes of rich and poor in the decade since the start of the financial crisis are starkly illustrated by a new report showing the young and those renting homes struggling while the top 1% have now recouped all the ground they lost during the world’s worst post-second world war slump.
New research from the Resolution Foundation showed that households with incomes of £275,000 or more quickly recovered from the impact of the deep recession and have seen their share of national income return to the level seen before the global banking system froze up in the summer of 2007.
But while the rich have been thriving, the thinktank said the other 99% of UK households had found it more difficult to make ends meet.
It added that the year running up to last month’s general election had seen weaker wage growth, higher inflation and frozen welfare benefits and that these offset any gains from rising employment.
Groups that strongly supported Labour in the election – those aged under 35 who have been frozen out of home ownership by low wages and high prices – have fared particularly badly. They are the only group that had so far failed to see incomes return to pre-crisis levels.
The thinktank said the report highlighted a country increasingly divided by age, by housing tenure and by inequality – and that all three factors had been important in the shock election result in which Labour gained 30 seats and deprived the Conservatives of an overall majority.
The foundation added that the surprise was not that the groups faring badly had turned out – both in last year’s EU referendum and in the recent general election – to reject the status quo, but that it had taken them so long to do so.
Sterling’s fall since the Brexit vote in June 2016 has pushed up inflation by making imports dearer, but the Resolution Foundation said the current squeeze on living standards for the “just about managing” previously championed by the prime minister, Theresa May, was a continuation of a longer-term trend.
Families on low and middle incomes had seen their living standards rise by just 3% since 2002-03. Once housing costs had been taken into account they were no better off than they were 15 years ago. Two in five said they were unable to afford to save £10 per month, while 42% say they could not afford a week away on holiday at least once a year, up from 37% before the financial crisis.
Adam Corlett, senior economic analyst at the Resolution Foundation, said: “The incomes of the top 1% took a short, sharp hit following the financial crisis. But they’ve recovered rapidly since and the very richest households have now seen their share of the nation’s income return to very high pre-crisis levels.
“In contrast, for millions of young and lower-income families the current slowdown comes on top of a tough decade for living standards, providing a bleak economic backdrop to the shock election result.
“Over the last 15 years and four prime ministers, Britain has failed to deliver decent living standards growth for young families and those on low incomes. Rising housing costs have added further financial pressures. The big surprise of the recent election and EU referendum wasn’t that many of those families turned out to vote against the status quo, but rather why it’s taken so long for that to happen.”
The share of national disposable income for the richest 1% of households rose steadily after Margaret Thatcher became prime minister in 1979 and reached a peak of 8.5% on the eve of the financial crisis. The Resolution Foundation’s report showed that after dipping to 7% during the recession that followed, the top 1% again have 8.5% of national income.
The thinktank – which focuses on those on middle and lower incomes – said Theresa May had been right when she entered No 10 to emphasise the need for the economy to work for the young and those on low pay. However, the foundation’s annual audit of living standards found that real incomes for these groups had fallen over the past year.
It said a shortlived boom in the UK in the two years ahead of the 2015 general election won by David Cameron had come to an abrupt end in 2016-17, when real income growth for the typical household income had halved to 0.7% a year. Low and middle-income families fared even worse, with income growth of 0.4%.
“This is the big challenge facing Britain today,” said Corlett. “Not only do we need to get incomes growing again but we need to ensure that growth is spread evenly across the country, across generations and between rich and poor.”
Recent evidence had suggested that living standards – usually a key factor in deciding which way people vote – were actually falling when the prime minister decided to call the June election.
The Resolution Foundation said the disappointing recent performance of the economy meant that the incomes of young families – those under 35 – were no higher than they were 15 years ago. The incomes of pensioners – a group that overwhelmingly voted Conservative last month – have grown by 30% in real terms over the same period.
Britain has had ultra-low interest rates since 2009, but the report said the benefits had gone to those who owned property, not renters. Incomes of those with a mortgage grew by an above-average 1.7% in 2016 while private and social renters experienced income growth of 0.2%. The report said differences between those with mortgage and renters went beyond the security and wealth associated with home ownership and extended to families’ day-to-day living standards.
Fast-rising disposable incomes for the top 1% had been the sole driver of rising inequality since the mid-1990s, the Resolution Foundation said. The gap between rich and poor for the other 99% of the population had actually fallen over the same period, it added.