Personal and household finances in the UK

There are many different factors that affect our standard of living but a key aspect is our financial situation, in particular levels of personal and household income, wealth and spending.

This article is part of a series of UK Perspectives providing an overview of the social and economic changes of the nation over the last three decades. It presents some key statistics relating to personal and household finances.

1. The trend of rising household income has levelled off since 2007

Real Household Disposable Income (RHDI) per head of the population, UK, 1997 to 2013

Real Household Disposable Income (RHDI) is the total amount of money that households have available after direct taxes (such as income tax and council tax) have been paid, with an adjustment for inflation to allow for comparisons over time.

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This chart uses RHDI per person in order to adjust for the growth in the UK population over this time period. It shows that RHDI per person steadily increased between 1997 and 2007, but then fell from £17,300 in 2010 to £16,900 in 2013.

2. Differences in household incomes have grown since 1980

Real equivalised household disposable income1, UK, 1980 to financial year ending 20132

Real equivalised household disposable income is RHDI that has been equivalised. The process of equivalisation accounts for the fact that households with many members are likely to need a higher income to achieve the same standard of living as households with fewer members.

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Since 1980 income levels for all households have generally been rising (after accounting for inflation) but this has been accompanied by an increase in income inequality. In terms of disposable income, the richest fifth of households have seen the greatest percentage increase in their incomes, while incomes for the poorest fifth have increased at a slower rate.

Considering more recent figures, since the financial year ending 2008, the average (median) income across all households has fallen by 5% (after accounting for inflation). Although the richest fifth of households followed this general decline, incomes for the poorest fifth have actually risen by 3%.

3. The percentage of people living in relative low income has been falling over time

Percentage of people living in relative low income, UK, financial year ending 1999 to financial year ending 2013

Households with income below 60% of the median UK household income in the year the data is collected are considered to be living in relative low income in that year.

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There were 2.3 million children living in relative low income in the UK in the financial year ending 2013 (17% of all children). This is a fall from 26% in the financial year ending 1999.

A similar percentage of pensioners were living in relative low income in the financial year ending 2013 (16%). This has also fallen since the financial year ending 1999 when it stood at 27%.

Finally, there were 5.5 million working-age adults living in relative low income in the financial year ending 2013 (15% of all working-age adults). This has changed little since the financial year ending 1999.

However, it is important to remember that falls in the number and percentage of people living in relative low income in part reflects the recent falls in median income. This means the relative low income definition based on 60% of median income, has fallen. Therefore, these reductions do not necessarily reflect an increase in the standard of living.

4. The cost of living: how does the growth in pay compare to inflation?

Here we compare the growth in regular pay3 with the growth in the price level (the rate of inflation).

We use the growth in the Consumer Prices Index (CPI) to represent the rate of inflation as this is the headline measure of inflation in the UK4.

Annual growth rates in average weekly regular pay in Great Britain and the UK Consumer Prices Index (CPI), 2001 to 2014

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Historically the annual growth in average weekly regular pay has tended to be higher than the inflation rate. However from late 2009 to mid-2014 the inflation rate was above the annual change in average weekly regular pay in Great Britain.

More recent data has shown the annual change in average weekly regular pay exceeding the inflation rate leading to a “real” increase in wages. This has been partly because of an upturn in the annual growth rate of the average weekly regular pay and partly because of falls in the inflation rate. In fact in the year to December 2014, the UK inflation rate was just 0.5%, the joint lowest level since records began in 1996.

The main contribution to the slowdown in the inflation rate has come from prices for gas and electricity. In December 2013 a number of the major utility companies raised their prices. In contrast, there were no increases in December 2014. Meanwhile, the price of petrol and diesel for transport has continued to fall and this has also contributed to the lower rate of inflation.

5. Household spending decreased between 2006 and 2013

UK households spent £517.30 on average per week in 2013. However, when taking inflation into account, average spending has actually decreased since 2006 – when households spent £539.80. The largest single area of spending in 2013 was on housing (excluding mortgages), fuel and power at £74.40 a week.

6. Increased spending on household energy, but a decline in fuel poverty

Percentage of household disposable income5, spent on energy6, UK, 2002 to 2012

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In 2012, the poorest fifth of UK households (in terms of disposable income) spent £93 a month on household energy (equivalent to 11% of their disposable income). This is compared with £126 a month for the richest fifth (equivalent to 3% of their disposable income)

Since 2004, domestic energy prices for the UK have generally risen in price by more than the rate of inflation (as measured by the CPI). In 2010 domestic energy prices fell from the previous year’s level for the first time in over a decade. Between 2011 and 2013 domestic energy prices continued to rise above inflation, however these price rises were not sustained in 2014.

A household is said to be fuel poor, and therefore experiencing fuel poverty if it needs to spend more than 10% of its income on fuel to maintain an adequate level of warmth (usually defined as 21 degrees for the main living area, and 18 degrees for other occupied rooms). This is referred to as the '10% definition'.

The number of fuel poor households in the UK in 2012 was estimated at around 4.5 million, representing around 17% of all UK households. This was unchanged from 2011 and 1 million fewer households than in 2009.

Overall there has been a fall in the consumption of both gas and electricity since 2005. This is in part due to rising prices and the impact of energy efficiency policies.

7. Total household net wealth has increased overall but there is an unequal distribution across Great Britain

Total net household wealth is defined as the sum of net property wealth (the difference between the value of owned property and the amount owed on it), physical wealth (assets such as cars, art, antiques etc), net financial wealth (the value of savings and investments minus any debts), and private pension wealth.

Total net household wealth aggregated across all households in Great Britain in the period July 2010 to June 2012 was £9.5 trillion.

  • The largest elements of this were private pension wealth (38%) and net property wealth (37%).
  • 44% of the £9.5 trillion was owned by the wealthiest 10% of households, while only 9% of the £9.5 trillion was owned by the least wealthy 50% of households.
  • This figure has increased from £9.0 trillion in the period July 2008 to June 2010 and £8.4 trillion in the period July 2006 to June 2008 (not adjusting for inflation).
  • Half of all households in the period July 2010 to June 2012 had total net household wealth of £218,400 or more


Overall, levels of income have risen since 1980, but the gap between the richest and poorest fifth of households has widened. Nonetheless, the percentage of the household population living in relative low income has fallen, and fewer households are living in fuel poverty.

However, there has been a decrease in household spending after inflation is taken into account. This may be related to the growth in pay being below the inflation rate since the economic downturn until very recently when falls in the inflation rate have reversed this situation.

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