The three charts that explain why you feel broke

Want to understand what’s really going on in Britain and how we can fix it? Join Vicky Spratt’s subscriber-only newsletter, The State We’re In, where she breaks down the big issues shaping the country. You can sign up to get it sent straight to your inbox, every single week, here. Britain is in the middle of a lost decade for income growth. It is why you feel that no matter how hard you work, how much overtime you do or how many pay rises you’ve managed to negotiate, the needle on your quality of life is stuck, refusing to move higher on the dial in front of you. It is, to be blunt, why you cannot have nice things. And, perhaps, why politicians struggle to capture our attention, hold it and stick around long enough to improve the situation. Coming up in this week’s newsletter: The income statistics which tell us that Britain is now in the midst of the worst decade for income growth since records began. Is the end of the small-time buy-to-let investor landlord nigh? And, finally, why you need to watch the BBC prison drama Time. It’s official: this country is suffering the worst decade in terms of the growth in household incomes since records began. Leading Westminster think-tanks, such as the Institute for Fiscal Studies (IFS) and the Resolution Foundation, have warned that this situation is “catastrophic” and that a “painful” few years lie ahead. Shorts Due to cost of living pressures and a lack of substantial wage growth to tackle them, the latter group think that a typical working-age household will see their disposable income fall by £1,050 or 3 per cent between now and 2029. Slow growth, inflation and stubbornly high housing costs are the main culprits. But it wasn’t supposed to be like this. Indeed, it wasn’t always like this. As this chart shows, while disposable incomes fluctuated throughout the 1970s and 80s, they generally rose again after a fall. Not so since the 2008 global financial crisis, Brexit and the pandemic. In previous decades, you could expect to end up thousands of pounds better off. Now, we will be lucky to end the 2020s a few hundred quid better off. For younger adults in particular, as I wrote in my column, this problem is particularly dire. If you are unlucky enough to have been born in the 1980s or 90s and find yourself trying to build wealth, buy a house or start a family at this particular moment in modern history, you’re swimming against an increasingly strong tide. The average house price in the UK is currently around 6.5 times the average income, compared to around 3.5 times in 1996 and 2.5 times in 1966. And, yet, there is little political urgency aimed at this issue. One could argue that it is why Andy Burnham – and now former chancellor Rachel Reeves – think Britain should rejoin the European Union and why we’ve heard so much about growth – now rebranded as “good growth” – in recent years. Flip the rhetorical coin and, equally, others will say it’s why we left the European Union in the first place and why there has been so much talk about cutting immigration (which, as I’ve written, is now so low as to pose its own growth risk). But, beyond that, nobody in power, or close to it, seems to want to address this issue head-on. Last week, Chancellor John Healey delivered what was widely-interpreted as being a very safe and sober budget in the House of Commons. No surprises, no bells or whistles, just kicking a can full of difficult spending decisions – like benefits changes, student loan repayments and the cut to the triple lock on the state pension – down the road until 2030. The Resolution Foundation have warned that measures in the Budget to tackle the cost of living – such as giving people £100 off their energy bills – did “not live up to the scale of the challenges that Britain faces”. What Healey did not say last week is that he, even though we are in a “lost decade” for income growth, like Reeves before him and Hunt before her, will keep tax thresholds frozen until at least 2030. This means that even as people’s pay goes up, the amount at which they tip into the higher rate tax band of 40 per cent does not. So, effectively, their pay bump means less than it would, could or should. You are now dragged into paying the higher tax rate of 40 per cent if you earn £50,271 or more. You stay in that bracket until you earn £125,000, but at £100,000 a year you lose your personal tax-free allowance and your entitlement to state-funded free childcare. This tax rate used to be for some of the richest people in our society. But because of wage increases in recent years, as employers give their inflation-hit workers pay rises, the number of people earning over £50,000 has roughly doubled over the last decade, up from about 3.5 million to around seven million. Analysis from the IFS has shown that by 2027-28, the number of people paying the higher rate of income tax will reach 7.8 million, or a fifth of all taxpayers. That includes around one in eight nurses, and one in four teachers. In contrast, in the 1990s, virtually no nurses and only one in eight teachers paid the higher rate of tax. If Britain is now a country where nurses and teachers pay the highest rate of tax, once paid by bankers and top solicitors, even though they may be struggling to buy houses or afford to have children, then our ideas about class and what it’s possible to achieve are warping almost as fast as our living standards. Have you recently had a pay rise that didn’t go very far? Let me know vicky.spratt@theipaper.com Housing crisis watch Are we witnessing the end of the small-time buy-to-let landlord? I think so, as I’ve written here. And, if you think Labour allowed this to happen by accident, you’ve not been paying attention. Vicky’s pick I’ve been watching a series written by Jimmy McGovern called Time, which looks at Britain’s prison system. It was heartbreaking and shocking. I asked my partner, who works closely with the prison sector, whether some of the horrors depicted were accurate – young people being locked up all day in tiny cells in a young offender’s institute with little time outside or for exercise – he said… yes.