According to the Organisation for Economic Cooperation and Development (OECD), a significant decline in household incomes during the first quarter of the year in the UK can be attributed to a sharp rise in tax payments and reductions in energy subsidies. The UK ranked in the lower half of the income table among OECD member states due to tax increases exceeding those faced by individuals in the US, France, and Germany.
Data from the OECD review showed that “real” household incomes per capita, adjusted for inflation, grew by 0.9% in the first quarter of 2023, surpassing the 0.3% growth in real GDP per capita. This marked the third consecutive quarter of growth in real household income per capita among OECD members and the fastest increase since the boost provided by pandemic-related assistance programs in 2021.
Out of the 21 countries with available data, 11 registered an increase in household incomes, while 10 experienced a decline, including the UK. The improvement or deterioration of incomes was closely tied to government tax and spending programs, particularly related to the pandemic and inflation crisis, as well as wages.
The UK and Germany devoted significant resources to safeguarding household incomes through subsidy payments, while France and Italy supplemented income subsidies with energy price caps. As a result, Italy and the US saw growth in household incomes, while Canada, France, Germany, and the UK experienced declines.
Canada witnessed the largest drop (-2.2%) in real household income per capita, partially due to the reduction of social benefits introduced last year to offset rising prices. In Germany, both real GDP per capita and real household income per capita fell for the second consecutive quarter, primarily attributed to the surge in gas and electricity prices during the winter.
France curtailed most of its energy-related subsidies in the first quarter, leading to a 0.5% decline in household incomes. Conversely, Italy maintained many subsidies, protecting household incomes, which rose by 3.3%.
The UK saw a 0.8% decrease in real incomes, primarily driven by a significant increase in personal taxes resulting from rising wages, spending on VATable goods, and wealth taxes such as inheritance tax.
During the first quarter, the UK and French economies remained stagnant, while the German economy contracted by 0.4% per capita. Italy experienced the largest increase in GDP per capita (0.7%) and the fastest rise in real household incomes (3.3%) due to significant cuts in energy prices.
The OECD attributed the 1.7% gain in real household income per capita in the US primarily to a decrease in payable taxes following the 2022 increase, caused by wage and salary hikes, deferred payment of 2020 taxes, and substantial capital gains.
Poland witnessed robust growth in both real GDP per capita (3.9%) and real household income per capita (3.5%) among other OECD countries. Denmark (4.3%), Belgium (4.1%), and the Netherlands (2.6%) also experienced substantial increases in real household income per capita.
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