Household disposable incomes fell below pre-pandemic levels in 2023

Latest Office for National Statistics (ONS) data has shown that median household disposable income in the UK was £34,500 in 2023, a decrease of 2.5% from 2022, based on estimates from the Office for National Statistics (ONS) Household Finances Survey (HFS).

Median household disposable income for the poorest fifth of the population increased by 2.3% to £16,400, partly because of government cost of living support measures; however, this figure remains 2.4% below pre-pandemic levels.

Meanwhile medianhousehold disposable income for the richest fifth of the population decreased by 4.9% to £68,400; this is 4.3% below pre-pandemic levels.

Median household disposable incomes have decreased by an median of 0.3% per year between 2020 and 2023, in comparison with a longer-term increase by an median of 0.8% per year over the 10 years leading up to 2023.

The data shows the biggest drop in disposable income inequality since 2011  to 33.1%.

Commenting on the data, Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said  “There’s a good reason why the cost-of-living crisis in 2022/23 felt like the end of the world for our finances – because for a lot of people it was. 

“Taxes took a horrible toll, with a National Insurance hike for the first couple of months of the tax year, and the frozen tax thresholds that meant the government swallowed a larger proportion of our income with every pay rise. As a result, average household disposable income fell – leaving us worse off than the previous year. Meanwhile, inflation peaked at 11.1% in the middle of the tax year and energy prices shot through the roof. 

“The good news is that an awful lot of this pain is receding for large swathes of the country. Inflation has fallen to 2.2%, which is now comfortably behind wage rises, so those who are in work are largely getting better off. Frozen tax thresholds mean fiscal drag is still doing some serious damage, and while energy prices have fallen, they’re still significantly higher than before the pandemic, so there are still significant numbers of people facing a battle to get to the end of the month. However, if the cost of living crisis has loosened its grip on your finances, it presents a real opportunity.

“The July 2024 HL Savings & Resilience Barometer shows that we’ve built our resilience considerably in the past 18 months, and forecasts that it will continue. It shows that our disposable income is set to be up 0.7% in the next 12 months. The figures show that we still haven’t recovered in real terms from the end of 2019, but the cost-cutting we introduced means we’re saving more than before the pandemic – with a savings rate around 3.5 percentage points above its pre-pandemic level. For those who find themselves in a better position, this is a golden opportunity to take stock.

“It’s worth working out what you can afford to free up in your budget right now, and where the gaps have opened up in your financial resilience. Separate HL research from April 2024 found that 21% of people had stopped saving, or cut back in the previous six months, while 17% stopped or cut pension contributions, and 13% did the same with investments in a stocks and shares ISA. Whatever your financial weaknesses, you can use the extra wiggle room to get back on track.”