Resolution Foundation found that there is a wider gap in the spending powers among families of different incomes in the UK than in Germany, the Netherlands and France.
When adjusting for the cost of all goods and services, poorer German families in the 10th percentile for earnings are 16% better off than poorer British families, while the gap widens further to 21% when the typical spending of lower-income families is used as the benchmark.
‘Toxic history’ of ‘high inequality’
Simon Pittaway, senior economist at the Resolution Foundation, said Britain’s “toxic history of low growth and high inequality” had led to this situation.
“While food and clothing are relatively cheap, the sky-high cost of housing – which accounts for almost a quarter of all spending by lower-income households – makes Britain a particularly pricey country for poorer families.
“Britain’s housing costs crisis is a major driver of child poverty, and contributes to poor families being £2,300 worse off than their German counterparts. The crisis needs to be tackled urgently – from building more affordable homes to providing better support for low-income renters,” he added.
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Housing havoc
The report found that British families in the bottom half of the income distribution spend nine percentage points more of their total budgets on housing and four percentage points more on food than those in the top half.
While food in the UK is 12% cheaper than the OECD average, in part because many items are exempt from VAT, housing is 44% more expensive in Britain than the OECD average.
Furthermore, poorer households are less affected by the relatively high cost of transport in the UK, which is 26% higher than the OECD average, as they spend far less of their budgets on it than richer households (11% versus 15%).
However, they are heavily impacted by the high cost of housing. Housing is the biggest item in a poorer family’s household budget, the think tank noted, which is why poorer people in the UK struggle with spending.
Overall prices in the UK are comparatively high, according to the OECD’s purchasing power parities statistics. Switzerland is the most expensive country (47% above average), while Turkey is the cheapest (65% below average). UK price levels are 8% higher than the OECD average.
Other UK expenses
As well as housing, other particularly expensive categories in the UK include alcohol, which is 53% above average, transport at 26%, health at 9%, and education at 7%.
Meanwhile, clothing and footwear, hospitality, food and drink and communications are all cheaper than average in the UK.
