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Thursday, June 20, 2024

U.K. millennials will probably never see same income boom as elders, study shows

Whether you’re Gen Z, a baby boomer, or somewhere in between, if you’re an adult living in the U.K., you’ve probably had the lingering sense that things have been getting worse for a number of years now, between the cost-of-living crisis, creaking public services, and anemic economic growth.

A new study adds a fair amount of credence to those feelings, while offering a sobering reminder to millennials that the old days of bumper wage rises in adulthood are probably not coming back.

Living standard slowdown

U.K. disposable income growth has been outstripped by that of peers like the U.S. and Germany in recent years, according to research by the Institute for Fiscal Studies (IFS), shoving the country near the bottom of a league table it once competed to lead. 

Living-standard growth has been slower everywhere in the last 15 years for myriad reasons. The financial crisis and COVID-19 have served as tumultuous bookends for a wider period of slowing productivity gains, but even accounting for that, things have been worse in the U.K.

Having ranked near the top of a rich-country league table between the mid-1990s and mid-2000s, wage growth in the U.K. has experienced a rapid fall-off as the 21st century has plowed on. 

Between 1995 and 2007, Brits enjoyed a 41% increase in disposable income, helping them outpace countries like Sweden, Italy, Denmark, and the U.S. This was a period when baby boomers were experiencing their prime earning years and Gen Xers were in the crucial early stages of their careers.

However, between 2007 and 2019, working-age incomes grew by just 6% in the U.K., compared with 12% in the U.S. and 16% in Germany. The country ranks 11th out of a 14-strong list of countries analyzed by the IFS.

“The slowdown in growth across the developed world makes it clear that there are plenty of non-U.K. specific factors at play, though it is also notable that the U.K. has slid down the growth league table in that time,” the authors wrote. 

“Since 2019, it is perhaps unsurprising that growth has stalled given the COVID pandemic and energy price crisis, though again the U.K. seems to have fared somewhat worse than many comparable countries.” 

There was an element of wealth redistribution during this slowdown, helping reduce income inequality. The IFS found wage growth at the 90th percentile income bracket rose by just 1.5% between 1995 and 2007, while low- and middle-income earners saw the fastest growth.

But in terms of generational rivalry, the findings will be a reminder to British millennials that they have missed the boom time enjoyed by their Gen X and baby boomer predecessors. If the trend continues, it’s not likely they’ll be able to catch up either.

The pill is bitterer still when looking at the U.S. and Germany, which both outstripped earlier income growth between 2007 and 2019. 

What, or who, is to blame?

The IFS didn’t provide a specific reason for the U.K.’s descent down the league table, but a host of commentators will be scrambling to identify the culprit behind Britain’s underperforming economy, and they have plenty of options to choose from.

While some might point to the effects of Brexit, the IFS’s analysis covers a period when the U.K. was still in the EU. The U.K. government’s financial watchdog, the Office for Budget Responsibility (OBR), predicts that long-run U.K. productivity will be 4% lower under post-Brexit trading arrangements than it would have been in the bloc.

Others will argue that the fact that the majority of the 2007–2019 period was a time of Conservative rule isn’t a coincidence. The party just marked 14 years in office earlier in May, and public patience in its government is wearing thin.  

The Conservative government, which operated under a rare coalition with the Liberal Democrats between 2010 and 2015, will argue it had a lot to contest with, not least the burden of inheriting an economy on the ropes after the Great Recession of 2008–2009.

However, the austerity policies it enacted to rebalance public finances are a point of contention, and there is speculation over how much it has impacted economic growth and reduced living standards.

The U.K. public will go to the polls in July to elect its next government, and campaigners for the opposition Labour Party will likely use the IFS analysis as a stick with which to beat the Conservative Party.

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