Due to fifteen years of wage stagnation, British employees are £11,000 worse off annually.
The data comes from the think tank Resolution Foundation, which focuses on low- to middle-income households.
In addition, household revenues in the UK have fallen further behind those in Germany. In 2008, the annual disparity was over £500; it is now £4,000.
The Treasury asserts that the UK economy is more resilient than previously anticipated.
Last week, in his Budget speech, Chancellor Jeremy Hunt acknowledged that people’s finances continue to be under extreme strain.
In recent months, wages have not kept pace with inflation, resulting in a de facto pay cut for millions of Britons.
However, experts told Panorama that income problems date back much further.
Taking inflation into account, the Resolution Foundation calculated that if wages had continued to develop as they did before the 2008 financial crisis, the average worker would earn £11,000 more per year than they do now.
And a survey of more than 6,000 adults by Ipsos revealed that two-thirds of them believe the economy will worsen in the approaching year.
We have lower pay than our neighbors.
Chancellor Jeremy Hunt stated in the Budget that inflation, which measures the rate of price change over time, “erodes the value of hard-earned pay.
The government contends that problems with living standards are due to rising prices, which have been caused by the conflict in Ukraine and the legacy of Covid.
But the cost of living crisis has deeper origins.
Real wages have not experienced sustained development for the past 15 years.
The past decade and a half of wage stagnation, according to Torsten Bell, CEO of the Resolution Foundation, is “almost completely unprecedented.”
“No one currently living and employed in the British economy has ever witnessed anything like this.
“This is in no way a typical appearance. This is the appearance of failure,” he added.
Senior research economist at the Institute for Fiscal Studies, Xiaowei Xu, characterizes this as a “massive disparity in living standards” that ends nearly 60 years of consistent growth.
Ipsos’s February online survey of 6,189 adults reveals that one in four individuals is struggling to make ends meet on their current income, and nearly half are concerned about their financial situation.
As demonstrated by the Resolution Foundation’s comparison of typical household incomes in the United Kingdom and Germany, wage stagnation in the United Kingdom has also prevented it from maintaining pace with its neighbors.
The problem with productivity
So, what is the cause of this stagnant wage growth? The key to increasing compensation, according to economists, is productivity – a measure of workers’ output.
Dr. Mohamed El-Erian, a former deputy director of the International Monetary Fund and principal of Queens’ College Cambridge, explains, “Productivity is how much you produce per unit of labor or unit of capital.”
“The greater one’s ability to produce, the greater one’s monetary reward”
The productivity disparity between the United Kingdom and countries such as France and Germany is widening.
Since the 2008 financial crisis, many nations have struggled to increase their productivity. But Britain has struggled more than others.
Its annual growth rate averages 0.4%, well below the average for developed nations. One reason for this is the composition of the British economy.
Services such as finance, retail, hospitality, and recreation account for 80% of our economy. Traditionally, it is more difficult to increase productivity in these fields.
However, this is not the only factor. Our sluggish productivity growth is attributable in part to decades of low investment.
An inability to invest
Increasing investment is a widely acknowledged method for boosting productivity.
New technologies, machines, structures, and skills are all ways to increase the output of workers.
As part of a new agreement with Marks & Spencer, Panorama visited Callestick Farm in Cornwall, which recently invested more than £1 million to produce more ice cream.
New equipment, including a spiral chiller that rapidly chills ice cream, has tripled their daily production. More ice cream produced per day means more ice cream available for sale.
It’s a productivity boost that can, in the long run, result in additional funds for pay raises. It demonstrates the value of the investment, whether in new apparatus, infrastructure, or training.
But historically, the United Kingdom has not invested as much as it could have.
Since 1997, capital investment has represented only 16% of the entire value of the economy on average.
That is the lowest percentage of any developed nation during that period.
Prof. Diane Coyle of Cambridge University stated on Panorama, “Lack of investment over decades has retarded the economy and made the United Kingdom less resilient than comparable nations to shocks such as Brexit, Covid, and the invasion of Ukraine.”
