The UK’s poorest households have suffered the sharpest income fall, even as average wages grew nominally and benefits increased in the last financial year, new data shows.
New figures published by the Office of National Statistics showed the mean equivalised original income across households rose by £1,200 (2.6%) in the financial year ending 2024. But after stripping out inflation, this amounted to a real-terms drop of £1,400 (2.8%). This means that, while pay packets grew, they lost value in practice. For the poorest fifth of households, income losses were the steepest.
According to the ONS, their « equivalised » original income fell 7.7% in real terms, driven almost entirely by wages and salaries, which dropped nominally by 5.1% and after inflation, by 10.1%.
In contrast, the richest fifth saw their wages and salaries climb 1.8% before inflation, though this translated into a 3.6% decline once prices were factored in.
Overall, their incomes dropped by 3.4% in real terms – less than half the rate of loss experienced by the poorest households.
Equivalisation is a measure of income that takes account of the differences in a household’s size and composition, accounting for the fact that households with more members are likely to need a higher income to achieve the same standard of living as households with fewer members.
As poorer households lost relatively more, income inequality has also widened. The Gini coefficient for equivalised original income ticked up 0.4% to 47.6% in 2024. However, this still represents the second-lowest level of inequality in the past 10 years.
This comes despite the 10.1% benefit uprating of the 2024 financial year. Households saw a real-terms increase in unequivalised cash benefits of 8.2%. This reduced gross income inequality as measured by the Gini coefficient by 10.3 percentage points to 37.3%. This marked the largest effect of cash benefits on reducing gross income inequality since the end of the 2018 financial year.
Anna Stevenson, welfare benefits specialist at Turn2us, described the figures as « deeply concerning », adding that those who are most financially vulnerable can end up « worse off » during times of change.
The report also analysed households’ total income before taxes and benefits. It showed the household income amongst the richest fifth to average £116,600 – 12.2 times larger than the poorest fifth (£9,600).
This gap was reduced to 3.3 times larger (£85,100 and £25,700 respectively) after taxes and benefits.
With income tax thresholds in 2024 remaining at 2022 levels, creating « fiscal drag, » households’ tax liabilities increased.
Fiscal drag happens when tax thresholds are frozen while incomes, property values, and asset prices continue to rise. Even without headline tax rates going up, more people are pulled into paying tax, or paying at higher levels.
Wages and salaries across UK households increased nominally by 5.1%, while direct taxes had a nominal increase of 2.6%, mainly due to a 3.6% increase in income tax.
The poorest fifth saw a nominal decrease in wages and salaries of 5.1%, with a 2.5% nominal increase in income tax and a nominal increase of 2.2% in direct taxes. Comparatively, the richest fifth saw a nominal increase of 1.8% in wages and salaries, however, their income tax reduced nominally by 0.8% and direct taxes also reduced nominally by 1.4%.
Turn2Us’s Ms Stevenson added: « Our social security system is a vital public service, just like the NHS, and should keep us afloat when life takes a turn. Yet Turn2us research shows millions remain unaware of the support they could access, while stigma continues to lock people out altogether.
« We urge anyone struggling to use our Benefits Calculator and PIP Helper tools to see what they may be entitled to – support that could make all the difference during difficult times.”
The data follows a new report from the Resolution Foundation published earlier in the month, indicating that Britain has experienced an “acute slowdown in living standards” over the past twenty years.
Between 1994/95 and 2004/05, median incomes for non-pensioners had grown at a “healthy” 3% per year on average. Since 2004/05, this figure has been just 0.3%.
According to the report, had income growth continued its trend from the mid-1990s to the mid-2000s, a typical household would have been £20,100 per year better off by the 2023/24 financial year (in current prices).
Sir Clive Cowdery, founder of the Resolution Foundation, said: “Wages and thus household incomes have stagnated. If the trend growth in disposable household incomes we were experiencing in 2005 had simply continued – not even increased – then typical incomes would be £51,000. Instead, after a meagre 7% growth over twenty years, typical incomes are at £31,000 today. Everyone here is keenly aware of what a difference to living standards that missing £20,000 would make to a family.
“Second, there is no prospect of reversing this stagnation without addressing its heart: poor UK productivity. Over the past twenty years, Britain has found itself particularly exposed to nasty global shocks, not least the financial crisis and the COVID-19 pandemic. The slowdown in productivity since the financial crisis has been global, but Britain has done worse than many of our peers.”
He added: “The next improvements in living standards will thus depend critically on economic growth, hard choices about the size of the state, and a fair and stable distribution of power and taxation.”
