Labour fails to boost UK living standards after one year on job
Discretionary incomes tumbled 4.2% in April after a wave of bill increases and tax hikes
[LONDON] UK living standards are no higher than when Labour swept to power a year ago, highlighting the problems piling up for Prime Minister Keir Starmer as he struggles to contain the rise of Nigel Farage’s populist Reform UK party.
Discretionary incomes tumbled 4.2 per cent in April after a wave of bill increases and tax hikes, and failed to improve in May – the worst two months for households since the spring of 2022 when Russia’s invasion of Ukraine sent energy prices rocketing, according to Retail Economics.
In total, they have fallen 7.5 per cent this year to levels seen just after Labour won a landslide victory in July last year, with the least well off hit hardest.
The bleak findings come as separate analysis shows the number of Britons with second jobs jumping to a record high and one in six workers struggling to pay their monthly bills.
The figures help to explain why political discontent is brewing in Britain – despite Starmer’s claim that wages growing faster than prices is a sign of things improving. Labour has been overtaken in opinion polls by Reform UK, which has surged in support as it promises tax cuts and hand outs to lower-income Britons.
With pay growth running at around 5 per cent, well above the 3.4 per cent rate of inflation, Starmer and Chancellor of the Exchequer Rachel Reeves say they are delivering on an election promise to make working people better off. But Retail Economics’ data covers changes in tax and some bills not captured by official data, suggesting that the real picture for households is much worse.
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Disposable incomes recovered strongly from the spring of 2023 after being hit by soaring energy and food bills that pushed inflation to a peak of 11.1 per cent. However, April this year delivered a fresh blow as food prices jumped and a raft of regulated costs, from local authority taxes and rail fares to energy and water bills, shot up.
“These unavoidable outgoings hit lower-income households the hardest and offset recent earnings gains,” said Nicholas Found, head of commercial content at Retail Economics.
For the bottom 40 per cent of households, incomes remain below 2019 levels despite a nearly 7 per cent increase to the minimum wage that took effect in April.
It suggests workers could keep pushing for higher wages, maintaining pay growth above the Bank of England’s comfort levels despite a rapid deterioration in the labour market in recent months. While a fresh uptick in inflation in 2025 is being driven by one-off factors, policymakers are on guard against “second-round” effects and have signalled a “gradual” approach to cutting interest rates.
The deterioration in living standards also helps explain ongoing consumer caution even though wages are growing strongly. Lower-income households spend most of their earnings on essentials, leaving them less to spend in shops and restaurants, while the richest are saving more of their spare cash. Retail sales fell the most since 2023 in May, contributing to another month of economic contraction.
A survey by Lancaster University’s Work Foundation found that one in six UK workers said they are struggling to pay their bills each month. Some four in 10 say they have little income left for savings or holidays, and less than half believe wage growth is keeping up with the cost of living.
It said that the squeeze is forcing many Britons to seek more work, particularly men. Its analysis of official data for the three months through April showed the number of people with second jobs jumping by 10 per cent compared with a year ago to record highs.
“Financial pressures are pushing people to work extra hours or find additional sources of income, often through apps that make it easy to pick up extra work but this can lead to unhealthy workloads,” said Alice Martin, head of research at the think tank. “We are seeing similar trends in other countries such as the US.”
Frozen income-tax thresholds are also eroding living standards by dragging more workers into higher tax bands, and Starmer has refused to rule out extending the freeze as his government faces pressure to boost tax revenue after U-turns on billions of pounds of welfare cuts left Reeves with a growing budget hole to fill. The policy, introduced by the former Conservative government, is due to end 2028.
The Resolution Foundation estimates that fiscal drag would completely erase a 2.5 per cent wage boost in real terms for those just above the tax thresholds over the next three years. Some could even see a drop in real incomes once bills for council tax, a property-based local authority levy, are added to the calculation, the think tank added.
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