The Guardian view on Labour's feelgood economy: it's not for everyone – especially the poorest

The Guardian

2 days ago

When Sir Keir Starmer told reporters last week that his government's upcoming budget would 'build on what we've done' by focusing on 'living standards' and 'making sure that people feel better off', it was clear that he was trying to shift the political narrative from soulless statistics to lived experience.
But if the prime minister is serious, he should look at the latest forecast from the National Institute of Economic and Social Research (NIESR). The thinktank warns that while some households may indeed 'feel better off', many – particularly the poorest – will not. NIESR says real disposable income for the bottom tenth of households will fall this year. Living standards for the poorest fifth of Britain are well below their pre-pandemic level.
This analysis rather deflates Treasury ministers' claims that real wages under Labour had risen more in 10 months than they had in the 10 previous years of Conservative government. This political attack line might be arithmetically sound, but to make it stick requires a generous statistical interpretation. What ministers have done is go back to the post-2010 austerity years, when real wages slumped after the financial crisis.
Critics on social media have warned against cherrypicking time periods. They say real pay climbed gradually between 2015 and 2019 in the UK, but dropped again during the twin inflation shocks of Covid and the Ukraine war, before rebounding sharply after 2023. Ministers are scoring political points – but these are cheap given that there have been, so far, no significant changes in industrial policy, collective bargaining or public spending.
In fact, real wage gains under Labour have been modest. Average weekly earnings in real terms were £523 last July and £527 this June – an increase of less than 1%. Hardly a new dawn for workers. More troubling is the distribution – which is masked by the use of average figures. Strong wage growth, says NIESR, has been concentrated in the tech and public sectors, where low‑paid workers are underrepresented. Above-inflation increases in minimum wage haven't compensated for reductions in working hours. No surprise then that the thinktank's data shows that middle- and upper-income households are seeing improvements in living standards, while the poorest are falling further behind. For these households, costs such as food and rent are rising faster than incomes. They won't feel better off – because they aren't.
The upshot is that real personal disposable income rose by 4.1% in 2024-25, but the gains went almost entirely to better-off households. Today's unemployment figures show four-fifths of recent job losses concentrated in retail and hospitality – sectors that employ large numbers of low-paid workers. Clearly, for low-income families, the cost of living crisis has not abated. NIESR warns ministers to act – or risk letting the poorest slide into destitution.
The country's problem lies in its imbalances. For many Britons, the modest post-pandemic recovery in real incomes has come about largely because inflation fell. But productivity growth remains anaemic, and the underlying economic model – which is financialised, service-heavy and regionally lopsided – is widening inequalities. If the next budget fails to offer anything more than supply-side tweaks or fiscal restraint in the name of credibility, Sir Keir will find that 'building on what we've done' is not enough. For the poorest Britons, what's been done so far doesn't look much like progress at all.