You may feel life is getting less and less affordable – as many people do. But the government claims that the UK has a strongly growing economy and that we all benefit from that. It even, not entirely truthfully, claims that we have the fastest growing economy in the G7.

You may be wondering who is right, and why?

You are right: life in the UK is getting tougher for most people, and it is down to government policy:

  • There are two key elements of your personal finances;
  • For most people, at least one of those is in decline;
  • Government policy is the root of the problem.

If a civilised country is one where an increasing majority of the population can have a reasonable expectation of a comfortable life, the UK risks no longer being civilised.

There are two key elements of your personal finances

In detail, finances are difficult to understand, but at the highest level, they are simple. There are just two key factors:

  1. The flow of money in and out: how much money you have coming in (from work or other external sources) and going out (in expenditures other than capital investment);
  2. How much capital you own (for example cash in the bank, equity in your house, other investments).

The importance of the first point is well-known. As Dickens’ Mr Micawber put it:

“Annual income twenty pounds, annual expenditure nineteen pounds nineteen shillings and six pence, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

For those without a large stock of capital, that is essentially the whole story. Half of all households in the UK have less than £282,000 in total wealth – and most of that is tied up in the house they live in and in pension schemes, so it is not disposable capital they can use for normal spending. For most people, in other words, Micawber was right: if you spend more than you earn, you are in trouble.

But the top 1% have, in addition to their property and pension wealth, over £1 million in financial wealth (e.g. invested in stocks and shares) which they can spend when they wish. And if you have even more financial wealth –  £5 million, say –  the story changes completely. You might expect an annual return of 6% in an average year: that is £300,000. Of that 6%, 2% might be due to inflation, but that still leaves £200,000 you could spend in the year without reducing the real (inflation-adjusted) value of your wealth. Your earned income could be zero and you would still be very comfortable.

For most of us, at least one of those elements is falling

For the half of the population with above median income (~£32,000 for full-time employees; less for part-time), since 2010, your income has been falling in real terms – once inflation is taken into account, you have less to spend each month than you had in 2010.

For 12 years, you have seen falling spending power. No wonder life feels harder. This means that many people who, 40 years ago might have expected to be not rich but certainly comfortable, like teachers (pay between around £26,000-£41,000), store managers (£18,000-36,000) and accountants (£19,000-£50,000) are now finding it hard to get by.

When we come to look at the capital side of your finances, we see a strong link with qualifications: if you are without qualifications, then your wealth has decreased significantly since 2010. Conversely, if you are a graduate, then on average your wealth has increased significantly.

In fact, the overall pattern of wealth growth is that the richer you are, the faster your wealth has been growing.

So the people who are better off now than they were in 2010 are those whose wealth is high and rising enough to counteract the fall in their incomes.

How high does that have to be? Very roughly, if you are at the 75th centile for wealth and income, the rise in your wealth will more than offset the fall in your income. You would be earning over £44,000 per annum and have individual wealth of almost £400,000. But since most of that wealth would be tied-up in your house and your pension (on average, you might have around £35,000 in financial wealth) you might still be struggling to meet large unexpected bills.

And all that was before the increases in taxes on working people (National Insurance) and energy costs. Many people above the 75th centile are feeling the pinch now. In fact, the vast bulk of the population will feel the pinch this year. The Bank of England is forecasting the largest fall in UK living standards for over 30 years.

That is mass impoverishment at work.

If a civilised country is one where an increasing majority of the population can have a reasonable expectation of a comfortable life, the UK risks no longer being civilised.

Government policy is the root of the problem

Mass impoverishment is not caused by a single bad policy: the problem is that the pattern of policy making since 2010 has been consistently to focus on the interests of the top 1%, or even the top 0.01%, at the expense of the rest of the population:

  • Government spending, which benefits the population as a whole, has been driven down by austerity. This means that people increasingly have to pay (if they can afford to do so) for services which used to be free at the point of use. Last year, for example, more people had hip replacements privately than on the NHS – because the NHS is understaffed to the tune of almost 100,000 people and did not have the capacity;
  • Our tax system favours the wealthy over those who work for a living: the rate of tax paid on earned income is higher than that on unearned income (investment returns). When taxes are adjusted, they are moved downwards for the wealthiest and upwards for the rest. In Sunak’s Budget, for example, taxes on Banks went down while National Insurance paid by ordinary workers rose and the triple lock on pensions was abolished;
  • UK Regulation favours the wealthy: whereas other governments have protected their populations from the rise in energy prices, ours has refused to do so because it “might deter investors” – the interests of investors, in other words, trump those of ordinary citizens.

This government is transparently not acting in the interests of 99% of the UK population.

The good news is that we would need only five, fairly simple, changes to reverse this pattern of bad policy-making.

If you would like to see that change, please sign up and join the 99% Organisation.