Almost half of households do not see benefits of economic growth, report says

Almost half of people in Britain live in areas where economic growth does not translate into a better quality of life with a “stark” North-South divide in the spending power of households, a new report finds.

Researchers at consultancy firm PwC said every region the north of England, midlands and Wales had a lower spending power than the country’s average, with London and the South East comfortably above.

The findings come as Prime Minister Andy Burnham has pledged to tackle the cost of living and regional inequalities in order to boost living standards.

But questions remain over the new PM’s economic policies with surges in UK government borrowing costs set to impact public spending choices.

The report released on Thursday said the equivalent of 12.5 million households – 46% – lived in parts of the country where economic growth, often seen through increased business investment and job opportunities, were not leading to better living standards.

It said households in the north east of England had a spending power 6.6% below the national average, equivalent to £1,542 less a year. The north west was £1,493 less, while Yorkshire and the Humber were worst off with spending power down £1,917 comparatively.

Meanwhile, households in the South East were found to have spending power 9% above the national average, worth an additional £2,154 a year, followed by London.

Household spending power is seen as a good measure of whether economic growth is improving living standards.

PwC says it measures this by looking at income after taxes and housing costs, and takes into account the size and makeup of a household – which is aimed at giving a better idea of the money available to meet other expenses.

The UK has seen years of weak growth, although the economy expanded by 1.2% in the first six months of this year, according to official figures.

Most countries want economic growth because it usually means people spend more, extra jobs are created, more tax is paid to the government and workers get better pay rises.

All this together, in theory, leaves people better off – but it takes time for the benefits to be felt, and it does not necessarily benefit everyone. According to PwC, “only a fraction” of a rise in GDP – which a measures economic growth – leads to increased spending power.

Researchers said while there was a clear North-South divide in the spending power of households, there were also such examples of spending power differences within areas deemed better off, such as London and the south east.

For example, Richmond’s average annual disposable income was the highest in London at £35,448 – almost double the £18,384 recorded in neighbouring Hammersmith and Fulham.

“The research shows just how differently prosperity is experienced across the UK, with stark variations not only between regions but on each other’s doorstep,” said Rachel Taylor, government and health industries leader at PwC.