Overview

The government has rightly made improving living standards one of its top priorities. People’s incomes and living costs are fundamental, real and immediate. They affect people’s everyday experience of life in a way few policy areas can claim to. Because of this, living standards can be politically decisive: ‘are you better off than you were?’ is a question asked at every election – and it will be asked at the next one. This government will want to ensure that, at that election, the public answers ‘yes’

The living standards problem

The last government failed to improve living standards, causing great hardship for many, and contributing significantly to its election defeat.
• Real household disposable incomes (RHDI) increased by just £2,900 per person in the 17 years since the global financial crisis – less than half of the increase seen in the 17 years preceding it, when they rose by £6,700. The last parliament saw living standards decline for the first time on record, with a 0.1 per cent fall between 2019 and 2024.
• If the 1997-2007 trend of 2.4 per cent annual growth had continued, then people would be 32 per cent better off now than they are: disposable household income per person would be £7,700 higher per year (£149 higher per week).
• For the poorest 20 per cent, real incomes after housing costs were essentially the same as they were 20 years ago in 2003/04, and the indications are that the poorest 10 per cent saw a real incomes fall during this period.
• Despite claims that the last government was ‘levelling up’, inequalities in disposable income between regions have widened significantly since 2011. The UK has the largest regional inequality of any major economy, and many places have levels of disposable income per capita similar to Slovenia.

But delivering increases in living standards by the end of this parliament could be a significant challenge. This year’s spring statement projected RHDI to be just 2.5 per cent higher by the end of this parliament, worse than any parliament on record except the last. Other, more detailed analysis suggests the median household will actually be worse off by the end of this parliament, and poorer households especially so – in part due to the recent cut in disability benefits. Generating the economic growth that underpins living standards improvements is also a major challenge, largely due to factors outside the government’s control.
Despite mounting challenges, delivering improvements in living standards is possible. The numbers facing hardship fell the last time Labour was in power, with over half a million children and one million pensioners lifted out of poverty. In December, ministers committed to raising RHDI by the end of the parliament, on top of a manifesto commitment to reduce child poverty. They have already taken action, including an increase to the minimum wage and measures to control energy costs.

Delivering living standards improvements

Several departments must work together to tackle the five causes of poor living standards. These are:
1. High living and housing costs.
2. Low earnings.
3. Inadequate social security.
4. Low take-up of entitlements.
5. Insufficient financial security.

This report shows how the government can make people better off in these highly challenging circumstances. We set out how policies can be prioritised, coordinated and communicated in practice, with three key ‘pillars’

Pillar 1: prioritise, by focusing on living standards policies which are both effective and popular.
The government should:
1. Revise key departments’ priorities to include living standards and poverty reduction, including primarily: the Treasury, the Department for Energy 
Security and Net Zero (DESNZ), the Department for Environment, Food and Rural Affairs (DEFRA), the Ministry of Housing, Communities and Local Government (MHCLG), the Department for Business and Trade (DBT) and the Department for Work and Pensions (DWP).
2. Prioritise specific measures to raise living standards within those departments, from improving employment rights to capping annual rent increases 
and increasing take-up of benefits and social tariffs. These are summarised in the policy priorities summary table below.

Pillar 2: coordinate, by establishing clear accountability and cross-government working. The government should:
3. Make the Treasury accountable for five ‘living standards goals’ in addition to RHDI: 
i. Raise incomes at each of the 1st to 5th deciles.
ii. Maintain or reduce the aggregate cost of essentials in regulated markets, relative to median weekly pay.
iii. Reduce destitution and poverty.
iv. Improve income security – reducing pay lost to sickness and caring, and raising savings and pensions rates.
v. Reduce inequalities between both people and places.
4. Ensure the growth mission board can prioritise living standards, overseeing a dedicated strategy and taskforce.
5. Ensure all budgets and spending reviews deliver rising living standards.

Pillar 3: communicate, by making a broader case based on ideas of contribution and security. The government should:
6. Combine communications on economic growth with a story on economic security and living standards.
7. Focus economic messages on reducing costs and affordability.
8. Use social security messaging that combines security, need and universalism to sustain broad appeal