The UK has slipped down the rankings of affluent nations after nearly a decade of welfare cuts and stagnant incomes, according to a new report. Researchers found that some of the country’s poorest areas now rank below the lowest-income districts in Malta and Slovenia, raising concerns about the UK’s reputation for high living standards.
A study by the National Institute of Economic and Social Research (NIESR) highlighted that districts in Birmingham are now among the poorest in the UK. These areas fall behind the lowest-income regions of Finland, France, Malta, and Slovenia. Between 2020 and 2023, welfare reductions and near-zero real income growth pushed the bottom 10% of earners in the West Midlands below parts of Slovenia.
“UK regional income growth has been among the slowest in Europe, whilst real incomes in the majority of European regions have grown at a faster rate,” the report stated.
With Chancellor Rachel Reeves set to deliver the spring statement on 26 March, concerns are mounting over further welfare cuts. Reeves has committed to maintaining spending limits set in the autumn budget, ruling out tax increases or additional borrowing despite rising government debt costs.
NIESR has warned against budget constraints that limit welfare spending, arguing that poverty-reduction policies boost economic growth and national wellbeing. The report found that nearly half of wage stagnation is due to weak productivity growth, with tax and benefit changes worsening the decline. Cuts to financial support have hit millions of families, reducing average living standards.
The UK has struggled with productivity growth since the 2008 financial crisis. While other advanced economies have faced similar challenges, the UK has been among the worst affected. On average, British workers are 20% less productive than their French and German counterparts and 30% behind US workers. NIESR estimated that matching US productivity gains would make UK workers more than £4,000 better off today.
The analysis also found that the UK ranks in the middle of Organisation for Economic Cooperation and Development (OECD) countries for welfare spending as a share of national income. However, it has the third-lowest welfare value, calculated as a percentage of average wages.
Over the past 14 years, welfare payments have covered the cost of basic living expenses in only two years—both during the pandemic, when universal credit was temporarily increased by £20 per week. The report warned that the UK has become “neither a high-wage nor a high-welfare country, leaving millions trapped between low wages and inadequate support.”
Max Mosley, a senior economist at NIESR, described the findings as a wake-up call. “The uncomfortable truth our report has uncovered is that economic stagnation over the past decade is now threatening the UK’s position as a place for a high standard of living. We are neither delivering prosperity through high wages nor security through welfare.”
As the government prepares for the upcoming budget announcement, experts stress the urgent need for policies that promote wage growth and strengthen the welfare system to prevent further economic decline.
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