Poorest in Britain worse off than Slovenia and Malta after 15 years of stagnant wages, report warns

The poorest households in Britain are now poorer than the least well off in Slovenia after a decade and a half of stagnant income growth, a major report has revealed.

Workers in Britain would be £4,300 per year better off had wages grown at the same pace as in the US after the 2009 financial crisis, according to research by the National Institute for Economic and Social Research (NIESR) think tank.

And, as Sir Keir Starmer and Rachel Reeves prepare to slash the benefits bill by billions, the think tank warned tax and benefit changes have also exacerbated the decline in British living standards.

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In one of the report’s starkest findings, it said the poorest parts of the UK are now worse off than their counterparts in countries like Slovenia and Malta, with incomes growing in the majority of Europe faster than those in the UK.

And, in what will serve as a stark warning to the chancellor, with discussions ongoing to finalise the shape of Labour’s planned welfare cuts, NIESR said Britain has one of the least generous welfare systems of any developed country.

In a series of recommendations to Ms Reeves, it called on the government to scrap the two-child benefit cap, boost benefits so payments “always cover the cost of living” and boost public and private investment.

Senior economist Max Mosley said NIESR had uncovered the “uncomfortable truth” 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,” he said.

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Mr Mosley added: “That the poorest in our country now fare worse than those in nations once considered less affluent is a stark indictment of the UK’s economic social model.

“Reversing this decline will likely come to define the government’s growth agenda.”

Deputy public policy director Professor Adrian Pabst added: “After more than 15 years of real wage stagnation for millions, working families need to see a tangible improvement in their living standards over the duration of this Parliament.”

The report comes after more than a dozen charities warned Ms Reeves against cutting disability benefits by as much as £6 billion as part of her welfare reform plans, saying it would have a "catastrophic impact”.

In an open letter, organisations including Disability Rights UK, Citizens Advice, Scope, and Sense urged Reeves to "safeguard" the benefits in her upcoming spring statement.

They argued that any cuts would push hundreds of thousands of disabled households into poverty, rather than achieving the government's goal of increased employment.

Work and Pensions Secretary Liz Kendall has highlighted the significant number of people out of work due to ill health – 2.8 million – and the fact that one in eight young people are not in education, training, or employment.

The financial burden of sickness and disability benefits for working-age individuals has increased by £20 billion since the pandemic, with projections estimating it will reach £70 billion over the next five years.

The prime minister this week told a private meeting of Labour MPs the current welfare benefits system was “unsustainable, indefensible and unfair”.

“We’ve found ourselves in a worst of all worlds situation – with the wrong incentives – discouraging people from working, the taxpayer funding a spiralling bill, £70bn a year by 2030,” he said, adding “the people who really need that safety net [are] still not always getting the dignity they deserve.”

“That’s unsustainable, it’s indefensible and it is unfair, people feel that in their bones. It runs contrary to those deep British values that if you can work, you should. And if you want to work, the government should support you, not stop you,” he said.

An HM Treasury spokesperson said:“This Government inherited the worst living standards growth since ONS records began but we are clear that getting more money in people’s pockets is the number one mission in our Plan for Change.

“Since the General Election, there have been three interest rate cuts, we have increased the National Living Wage by a record amount, real wages are rising at the highest level in six months, the Triple Lock on pensions means that millions will see their state pension rise by up to £1,900 this parliament and working people’s payslips have been protected from high taxes.”