Fundamentally reforming Britain’s economy and welfare system is the only way to achieve rising, shared prosperity, a think tank has said.
In a report published on Tuesday, the Resolution Foundation said rising productivity was “irreplaceable” for increasing wages, but would mainly benefit higher and middle earners.
The think tank said current forecasts suggest 1.8 million more people, including one million children, would fall into relative poverty in the next decade as poorer household incomes increased by only 2% compared to 12% for typical households.
Instead, the report’s authors urged combining productivity growth with higher employment and changes to the welfare system, with working-age benefits linked to earnings in the same way pensions are and housing support linked to rent levels.
There is a real danger that inequality will rise as we leave behind large numbers of older and poorer individuals.— The Resolution Foundation
Mike Brewer, chief economist at the Resolution Foundation, said: “Economic growth – the essential precondition for rising wages – is sorely needed after 15 years of stagnation. But it’s equally important that this rising prosperity is widely shared.
“A strategy that delivers productivity growth alongside reforms to employment, pay, benefits and housing costs is ambitious. But it can draw on past policy successes, including the reduction in pensioner poverty, rise in employment and faster earnings growth for lower earners seen over recent decades.
“All political parties say they want to see a return to rising, and shared, prosperity. But only combining an end to Britain’s productivity stagnation with major reforms to our economy and benefits system can make that a reality – getting incomes up and inequality down.”
The report’s authors said rising wages would not help 11 million people in lower income households as much because they received less than half their income from employment.
They said: “This tells us what growth will not do: when growth drives rising wages but doesn’t feed through into other forms of income, there is a real danger that inequality will rise as we leave behind large numbers of older and poorer individuals.”
The UK saw a similar process during the 1980s, when economic growth boosted rising wages but left pensioners behind, causing pensioner poverty to soar from 14% to 41% in just six years, which governments then reversed by linking pensions increases to wages rather than prices.
The report said: “Subsequent pensions policy from the late 1990s onwards showed how changes in inequality are a choice rather than an unstoppable force.”
