For only the fourth time in 30 years, wages have stagnated – another blow to working families on the breadline who say they feel “hopeless” as they struggle to make ends meet.
The new data released by the Department for Work and Pensions on Thursday shows average household income growth stalled in 2017/18 as inflation rose, eroding the real value of earnings.
The double whammy – of inflation rising following the EU referendum and the government’s continued freeze on benefits for working people – has contributed to the stall.
This was the first year of zero income growth since 2012–13, which one expert said was a knock-on effect of the 2008 recession.
It is only the fourth year in the last three decades where median income did not grow in real terms. The only other times came after recessions.
DWP secretary Amber Rudd has called the statistics “disappointing” and said she would continue to work with colleagues across the house to “further improve our support for those on the lowest incomes”.
The figures also show 57% (8 million people) of those living in poverty are in working families. There are also 4.1 million children in the UK classed as living in a relative low-income household, which is unchanged from the previous 12 months.
In Lincolnshire, Aivitas, a single mum of three is feeling the pinch, despite working more lucrative night shifts.
“More than half of my earnings are going on bills and debt,” the 31-year-old said. “I’ve got one more debt of housing benefit I need to pay back, it’s quite a lot.”
The mother moved into a two-bedroom private rented house with her children after she was suddenly kicked out of another property by a friend. Space is tight, and Aivitas said she sleeps on the sofa so that her kids can get space in the bedrooms.
Stagnant wages are impacting her in other ways too. Her children ask about going on holiday. “My kids want to go to Spain like the other kids,” Aivitas said.
And despite being able to drive in her native Latvia, the cost of a UK driving licence puts it out of reach. “I want a driving licence but I just don’t have the money. That would help me a lot,” she said. “At the moment I walk to work, which takes an hour. I’ve no choice.”
Pleas for help from her local council have gone unanswered, she said.
“Two situations in my life have seen us nearly on the street, but I still don’t get any help,” she said. “I’m quite a little bit depressed, you know. I’m hopeless.”
Jonathan Cribb, senior research economist at the IFS, said it is poorer families like Aivitas’ who are most affected by the state of the economy.
He said it is unusual for there to have been no change at all especially after the last few years have seen income growth of around 2-3%.
“It’s only happened four times in the last 30 years, so really the big story that basically the economy began to recover from the 2008/09 recession – it really started the recovery in around 2012.
“Living standards and average household income started growing again to the extent by last year they were 6% above their pre-recession level and now it has just come grinding to a halt.”
Although the DWP doesn’t produce in-depth analysis of why exactly this has happened, other sources of information help build up a picture, Cribb said.
He added one of the main reasons was that inflation rose in 2017/18. “The reason it rose is basically because sterling fell significantly after the [EU] referendum and it took a while for that to feed through into higher prices for goods and services.
“What that means is that even though cash terms earnings growth in 2017/18 that’s the earnings of the pay in people in work was about 2.4% which was similar to the previous year, inflation rose from about 1% to 2.7% so therefore earnings didn’t keep up with inflation.”
The other main factor was the government freezing most working-age benefits and tax credits, which affects mainly poorer families.
“The higher the inflation is, the more painful a cash terms freeze is,” Cribb said. “So the combination of a freeze in working age benefits in cash terms and higher inflation pulls down incomes from benefits as well.”
The dual impact of these could have had a bigger negative impact if it wasn’t for employment levels again growing substantially, with the employment rate rising from 74.6% to 75.2%.
Cribb added it was hard to know exactly how Brexit had affected the economy since the UK voted to leave the EU in 2016.
“My understanding is that there is consensus that the economy as a whole would be bigger if we had not voted to leave the European Union,” he said.
“Quite how much bigger is not clear but if the economy was bigger and earnings were higher and inflation had been lower, then people would have been better off at least in this year.”
No income growth also meant that recent progress in reducing absolute poverty did not continue in 2017–18, with absolute poverty stuck at 19% once housing costs are accounted for.
Speaking in the Commons following the release of the statistics, Rudd said no-one in Britain should have their future determined by the circumstances that they are born into.
She said all children should be able to “reach their maximum potential, escape any societal constraints, dream big and reach the highest height” and everyone should be able to go into the workplace knowing a better future awaits them.
The cabinet minister added that everyone town and city needs to know that this government is “on their side”.
“These are ideals that are at the heart of this government, at the heart of the work I do every day. We will not stop until we have completed this mission.
“I am determined to tackle poverty, in particular, child poverty, and as I look at the next steps on welfare policy and at the DWP budget, including at the Spending Review, I will of course look at what more can be done to address poverty.”
Commenting on the data, TUC general secretary Frances O’Grady said it wasn’t right that millions of people are working hard, but still locked in poverty.
“The system is broken, with low pay, insecure work and the benefits freeze trapping families below the breadline,” she added.
“We need to redesign the economy to make it fair again. People need more control over their working lives and a fairer share of the wealth they create.”
O’Grady said zero-hours contracts should be banned and the minimum wage should be increased to £10 an hour.
Analysis by the National Housing Federation shows the high cost of housing is the biggest reason for a further rise in the number of children from working families living in poverty – responsible for 193,000 children falling into poverty since 2010.
There are now over a million children from working families living in poverty for the sole reason that their homes are too expensive – a 30% increase since 2010.
Kate Henderson, chief executive of the National Housing Federation, said we are now seeing the full effects of low pay, benefit cuts and the housing crisis.
“The lack of affordable homes is exacerbating in-work poverty,” she said. “There could not be a clearer signal to government that the country desperately needs more social housing – direct investment in the upcoming spending review is the only way to provide truly affordable homes for these families.”
She added: “This is more crucial than ever in the midst of Brexit uncertainty.”
CORRECTION: This article has been changed to reflect more recent data from the National Housing Federation’s analysis, which now takes Thursday’s statistics into account.