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According to the Office for Budget Responsibility (OBR) – the government’s independent economic forecaster – living standards will fall by 7% in the UK over the next two years, but some areas will be hit harder than others.
In general, when living standards fall, it means that people can afford fewer (or less expensive) goods and services. This is happening now as real disposable household income (the money you have left after tax and adjusting for inflation) is falling, due to an expected fall in UK real GDP per head.
Alongside this pressure on disposable income, the UK is also experiencing rising interest rates and falling house prices. This will push the economy into a recession lasting just over a year from the third quarter of 2022, according to the OBR.
With these developments, unemployment is expected to rise by more than half a million people – from 3.5% to 4.9% of the working-age population – in the third quarter of 2024. This will have long-term implications for real disposable incomes, which the OBr believes that it will still be 1.5% below pre-pandemic levels until 2027.
Falling living standards in Great Britain

Office for Budget Responsibility (OBR) Economic and Fiscal Outlook, November 2022
As the chart above shows, living standards are set to fall by 4.3% in 2022-23 and 2.7% in 2023-24, for a cumulative decline of 7% between 2022 and 2024. This will erase the previous eight years of growth in the standard of living and it is the biggest drop in history.
Even with the recent changes to the UK tax code, so that more of us will now pay extra tax, and the slowdown in GDP growth, inflation is the main driver of this decline in living standards. But it’s important to remember that the expected 7% decline is an average figure. In reality, the decline will be much greater for some households and regions than others.
Uneven effects of price inflation
The annual rate of inflation up to October this year was 11.9% for low-income households and 10.5% for high-income households, compared to an (average) rate for all households of 11.1%. This is because energy and food costs – currently the main drivers of inflation in the UK, as the chart below shows – take up a bigger share of poorer household budgets.
Rising prices, especially of food and energy

Office for Budget Responsibility (OBR) Economic and Fiscal Outlook, November 2022
All in all, inflation should probably will peak this year with 2.5% less than expected before the government’s energy price guarantee scheme was launched in September. Inflation should start to fall from next year and turn negative from 2024 to 2026, according to the OBR, before returning to the Bank of England’s 2% target between 2026 and 2027. But its impacts will continue, especially in worse areas.
The ‘left behind’ areas will be harder hit
In addition to facing greater declines in living standards than those better off, poorer households tend to be located in “left behind” regions – worse-off places that will be more affected by declines in living standards.
For starters, inflation is higher in the north than in the south east of the UK. Burnley, Blackburn, Glasgow and Blackpool were worst hit, with inflation above 11 per cent in all four places. This is more than 2% higher than in cities further south, such as London, Cambridge and Reading.
Inflation is higher in the north compared to the south east of the UK

ONS, HMRC (PAIE), Center for Town Estimates
Unemployment will also hurt these regions more because they are often less economically active, such as post-industrial areas in the East and West Midlands and the North of England. More than a quarter (26.7%) of people living in deprived areas are income deprived, compared to 12.9% in England as a whole. Plus, real household disposable incomes are lower and unemployment higher in these parts of the country. For example, although the national unemployment rate in Great Britain is 3.5%, it is currently 4.9% in the West Midlands. The rate of economic inactivity is also typically higher in regions that are lagging behind.
The UK is already the second most unequal G7 country after the US. This combination of higher inflation and economic inactivity, and lower disposable incomes and employment rates, will exacerbate inequality in the UK, with disadvantaged areas feeling the brunt of this.

enciktepstudio / Shutterstock
Tackling inequalities in living standards in the UK
One way to increase the real disposable income of households in these worst-affected regions would be to reduce the tax burden on working households in the lagging regions. This targeted approach could also stimulate the growth of SMEs in these regions which have already started to report a drop in demand as a result of the economic downturn.
Typically, lower and middle income earners tend to spend more of their income in their communities, rather than saving it. Research shows that tax cuts could be further targeted at workers in these tax brackets who live in these areas.
Corporate tax incentives for investments that benefit left-behind areas can also create better-paying jobs and stimulate growth in these communities. This should be for both SMEs and large multinationals. Improving infrastructure in these regions would also facilitate business and reduce reliance on car travel.
The government’s current “Raising Levels” agenda is clearly not working, and falling living standards will only make matters worse. Measures like these could help areas that are lagging behind to catch up with other parts of the UK.
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