The UK has tumbled down the league of affluent nations after almost a decade of welfare cuts and stagnant incomes, according to a report that found the poorest districts in Britain now rank below the lowest-income areas of Malta and Slovenia.
In a warning for ministers to protect welfare spending before Rachel Reeves’s spring statement later this month, the National Institute of Economic and Social Research (NIESR) said the UK’s reputation for high living standards was under threat.
Districts in Birmingham were ranked as the poorest in the UK, according to the study, and below the poorest areas of Finland, France, Malta and Slovenia, it found.
Between 2020 and 2023, a combination of welfare cuts and near-zero real income growth meant the bottom 10% of earners in the West Midlands saw their living standards fall below the level in parts of Slovenia, researchers said.
“UK regional income growth has been among the slowest in Europe, whilst real incomes in the majority of European regions have grown at a faster rate than those in UK,” the report said.
Reeves is expected to use her spring statement on 26 March to outline further cuts to welfare benefits to meet spending rules laid out in the budget last autumn.
The chancellor has said she will not raise taxes or increase borrowing beyond limits outlined in the budget, despite a rise in the costs of government borrowing in recent months.
NIESR has championed policies to reduce poverty, arguing that studies show they boost growth and the nation’s wellbeing. The institute has criticised budget rules that limit the scope for extra taxes and borrowing.
The report found about half of the stagnation in real wages could be attributed to weak productivity growth, while tax and benefit changes accelerated the decline, stripping many families of financial support and hitting average living standards.
A lack of productivity growth was to blame for much of the fall in living standards after the 2008 financial crisis.
While other industrialised nations have suffered a fall in productivity, the UK has been among the hardest hit. The average UK worker is about 20% less productive than their French and German counterparts and 30% less productive than US workers, it said.
The institute said it estimated that achieving the same rise in productivity as the US would make UK workers “more than £4,000 better off today”.
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The analysis shows how the UK now has some of the least generous welfare across countries in the Organisation for Economic Cooperation and Development (OECD), ranking it in the middle of OECD countries for welfare spending (as a proportion of national income) and third lowest for welfare value (calculated as a percentage of average wages).
The institute found that welfare payments covered the cost of essentials in only two of the past 14 years – both of them during the pandemic, after the £20 a week increase to universal credit.
The report said the UK had become “neither a high-wage nor a high-welfare country, leaving millions trapped between low wages and inadequate support”.
Max Mosley, a senior economist at the institute, said: “The uncomfortable truth our report has uncovered is that economic stagnation over the past decade is now threatening the UK’s position as a place for a high standard of living.
“A combination of weak productivity growth driving near zero growth in real wages and cuts to welfare has resulted in a situation where we are neither delivering prosperity through high wages nor security through welfare.”
