Britain’s quarter century: wealth and widening inequality

In this second part in our series on how the UK has changed in the past 25 years, we look at the finances of both the nation and individuals, before turning to housing and business.

The economy

Steve Schifferes, honorary research fellow, City St George’s University

For most of the 2000s the economy grew strongly, raising living standards and allowing the government to invest more in public services such as the NHS. This was the “NICE” decade, an acronym coined by former Bank of England governor Mervyn King to describe a long period of “non-inflationary, continually expanding” growth – in contrast to previous decades of “boom and bust”.

How has the UK changed since the start of the century? From Blair to Burnham, from the dotcom era to AI agents, time has certainly not stood still. In this six-part series, a team of some 35 experts look at everything from defence spending to species populations to the rise of populism to try and make sense of the intervening years.

In contrast, the period since the 2008 global financial crisis has been characterised by low growth, static real incomes and a growing government debt burden – all exacerbated by the COVID pandemic and the energy supply crisis caused by the Ukraine war.

UK GDP 1990-2025

Underlying the deterioration in Britain’s economic performance since 2008 has been a sharp fall in the rate of productivity, meaning the amount of output produced per worker. Falling productivity reduces output for the same number of workers, which brings down both GDP and real incomes.

In the first decade of the 21st century, UK productivity grew at 2% per year, with the economy expanding by 2.5%-3% annually – this was the culmination in a long period of strong productivity growth driven by everything from North Sea oil to corporate investment in IT and the internet. Since 2008 productivity on average has increased by 0.4% per year, and economic growth has fallen to an average of just 1.5% per year. If productivity had continued to grow at its pre-2008 rate, the average British household would be £18,000 better off today.

UK productivity 1990-25

Underlying this weakening productivity has been low levels of investment in infrastructure by both the private and the public sectors. This includes both physical investment in plant and equipment, as well as transport and energy, but also investment in training.

Despite prioritising improving productivity , there is little evidence that Keir Starmer’s Labour government managed to tackle this shortfall, at least in the short term.

Debt and spending

The stronger performance of the economy before 2008 allowed the government to boost spending while limiting tax rises and keeping the public debt below 40% of GDP. This changed after the financial crisis: government debt rose to 60% as it pledged over £1 trillion to bail out the collapsing financial sector.

Debt increased further to 80% during the COVID pandemic when the government spent £400 billion to subsidise wages, and has since kept on rising to 95% of the size of the economy – £2.9 trillion. This means the government is now paying out more in debt interest than it spends on any other service except the NHS.

Net debt as a % of GDP

Both government spending and tax revenues are now at 80-year highs as a percentage of GDP, with spending making up 45% of the total economy, and taxes 40%. This has severely limited the government’s scope to improve public services and invest in future growth, or to tackle the cost of living crisis.

Economic growth has also become even more uneven . The gap in GDP per capita
between the south-east and the rest of the country has continued to grow, with London’s average income now two and half times that of the poorest region – the north-east of England. The relentless rise in house prices has driven both regional and generational inequality.

The outlook

Though many countries were hit by the global financial crisis, Britain’s oversized financial sector meant it was both hit harder and recovered more slowly. It has fallen further behind its main G7 rivals both in long-term productivity growth and the level of real incomes.

With its economy more dependent on foreign trade, it is also more vulnerable to disruptions to the international economy, such as the Trump-era tariff wars and the effects of the Iran war on oil and gas output. The IMF has projected that despite a small upgrade the UK will only grow by 1.0% in 2026, dragged down by weaker international trade and higher oil prices.

In the 1970s, Britain was regarded as the “sick man of Europe”, falling behind while its continental rivals surged ahead. With the world more divided than ever, and with the emergence of new economic superpowers like China, the UK’s task in recovering its position will be even more difficult than the challenges it faced then.

Haves and have nots

Young people are finding it increasingly difficult to afford to own a home or find secure jobs. More working age adults, including those with low-paid jobs, are receiving benefits , while over a million people aged 16-24 are not in education, employment or training.

Overall unemployment is little changed, having fallen during the Tony Blair years, but now it is young people who are particularly hard hit as firms are not hiring new recruits. Meanwhile pensioners have benefited from the “triple lock” , which guarantees that state pensions grow generously each year.

Whereas poverty has decreased for pensioners, there has been a sharp increase in working age poverty and child poverty, including many who are working but still below the poverty line. The huge rise in house prices and the larger number of substantial private pensions being received by the baby boomer generation has meant that wealth is much more unequally distributed than 25 years ago.

Wealth

Mike Savage, professorial research fellow, International Inequalities Institute, London School of Economics

Britain has a far more equal distribution of wealth assets than in the early 20th century. Home-ownership, pension funds and various other financial investments have seen wealth shared much more widely among the middle and upper classes.

On the other hand, many have been left behind. The Resolution Foundation reckons that household wealth is now nearly 7.5 times GDP, up from around three times GDP in the mid-1980s, and the wealthiest have benefitted disproportionately.

There has been a stark rise in the “wealth gap” between the top 10% of wealth holders and sizeable numbers of the British population with little or no wealth. This is despite the fact that the share of total wealth taken by the top 10% has changed relatively little over the same period.

You don’t have to look all the way down the social strata to see what has happened. The Resolution Foundation calculates that the gap between the average family wealth per adult for the wealthiest 10% and those in the middle (the fifth decile) reached £1.3 million in 2020-22. This is up from £1 million in 2006-08 (once inflation is stripped out).

How wealth breaks down

Total household wealth in Great Britain reached £17 trillion in 2020-22, according to the wealth and assets survey of the Office for National Statistics. Some £5.5 trillion (32%) was held in property (mostly through owner-occupied housing) and £8.2 trillion (48%) in pension funds.

Middle-class homeowners have benefited from rising house prices – they’ve increased 8% in real terms since 2008, when the first edition of the survey was published. Since income levels grew at less than 1% in real terms over the same period, this has made the possibility of buying a house more remote for younger generations. Those who have retired in recent years have also benefitted from the inflation of pension stocks, whose contribution to total wealth rose from 35% to 48% over the period.

All this refers to what we could call “ordinary wealth”. Beyond that is another category called “strategic wealth” that’s tied up in financial investments, such as stocks and shares. This will include much of the 20% of total household wealth not tied up in pensions or property – though property wealth can also be strategic if it’s for rental.

Strategic wealth is predominantly held by a small number of very wealthy people. Those benefitting from these resources, often actively managed by a highly professionalised wealth management infrastructure, have done very well in recent decades.

Some commentators argue that we now live in an “asset society”. The capacity to earn economic rewards from assets plays an increasing role in shaping life prospects, as well as leading to greater socioeconomic inequality .

Wealth divides are strongly entrenched across many walks of life and may be becoming more evident. A striking example is the disparity between ethnic groups, where White Britons and the Indian diaspora have up to ten times more wealth than Black Africans and Bangladeshi communities.

Overall, this widening wealth gap poses significant challenges in British society. There are numerous concerns it is undermining social cohesion, by removing the ladder of opportunity and increasing younger people’s resentment of older generations. This is driving urgent policy discussions within the Labour party and beyond about how best to tax wealth.

Employment

Abigail Taylor, research fellow, Business School, University of Birmingham

In 2001 manufacturing accounted for the second-largest share of total workforce jobs (17%), reflecting a relatively strong industrial footprint remaining in regions such as the West Midlands. By 2025 manufacturing was down to just 7% of the total. Over the same period, employment in professional, scientific and technical activities – a key component of the knowledge economy – increased from 7% to 10%.

In 2001 as many as 23% of people aged 16-64 were economically inactive in England – in other words, not in work and not actively seeking work. This includes students, early retirees, long-term sick or disabled people, and those caring for family or homes. By 2025, the proportion had fallen slightly to 21%.

Yet there have been several striking shifts within the data. Among women the inactivity rate fell from 31% in 2001 to 24% in 2025, while among men it rose from 16% to 18%. The fact that women are participating more in the labour market reflects rising numbers of women working full-time, greater access to education and greater flexible work opportunities.

Underlying this are changing social norms about women working, as well as increases in their state pension age (from 60 to 66, while men’s has risen from 65 to 66). The shift is despite the fact that women continue to do more unpaid care work than men, and mothers, especially of young children , continue to experience disadvantages in job quality.

Meanwhile, long-term sickness has become an increasingly common reason for individuals being inactive. In 2004, 23% of inactive people were not working because of long-term sickness, compared with 28% today.

The rise of remote working

In the 2001 census only 9% of working people aged 16-74 reported working mainly at or from home. By the 2021 census , the equivalent figure was 32%. While the latter figure reflected the COVID-19 pandemic when a national lockdown was in place, more recent evidence points to a sustained increase in remote and hybrid working (meaning partly in the workplace, partly at home). Between January and March 2025, 28% of working adults in Great Britain worked in a hybrid manner.

As we move into the second quarter of the 21st century, AI is beginning to transform work. It promises large-scale potential for making us more productive, but there are concerns about what will happen to jobs. There is also the prospect of widening inequalities between workers who can use AI and others that get left behind.

Another key concern is the number of young people not in education, employment or training: it now stands at one in eight and rising. The Milburn report published in June 2026 is calling for a whole-system reset of the UK’s youth support and benefits systems.

Housing

Ken Gibb, professor in housing economics, University of Glasgow

To take the abrupt changes first, the most notable was the financial crisis of 2007-08. It dampened mortgage lending, while the ensuing shift to austerity hurt spending on social housing.

Other important turning points include the Grenfell tower fire of 2017, which led to an overhaul of building regulations , while the tragic death of Awaab Ishak in Rochdale in 2020 from mould exposure in his family’s social housing led to new laws making landlords more accountable for hazardous living conditions.

We should not be dewy-eyed about the past – homelessness was worse in 2001, as were property conditions. Housing quality has particularly improved in the social sector – at least until the repairs backlog caused by COVID. New-build standards are much better in relation to everything from insulation to ventilation, even if pockets of poor-quality housing do remain across the system, including in parts of the rental market.

Yet in 2001 it was easier to buy a home, afford private renting and access social housing. Many would agree that housing outcomes and opportunities are materially worse now than then. So what happened?

We do not build enough homes to meet demand for housing. Debates rage about the extent to which this reflects how the planning system operates, and how much can be blamed on nimbyism and developers essentially building out more slowly to maintain selling prices (and share prices).

The affordability of houses has worsened considerably. This is both visible in house prices to income ratios and the median cost of weekly private rents , which rose by 70% between 2007-08 and 2023-24. Together with stricter mortgage market regulations since 2008, this has made it harder for people to buy houses, so outright owners now outnumber those with mortgages.

UK households by tenure 2005-24

The social housing sector has shrunk. Social renting is now a scarce and prized commodity, with low vacancy rates, building levels way too low, and long queues to access what is available. The underlying composition of public spending is about 80% dominated by housing benefit, not building new housing.

The beneficiary from declining social housing and home ownership has been the remarkable growth in private renting, even if the above graph shows it peaked as a percentage of total tenure a decade ago. Initially rental growth was mainly in the form of small-scale buy-to-lets, but more recently it’s primarily from institutional investors such as pension funds building urban apartments to rent.

As for homelessness, despite overall figures well below that of 2001 , everything from rough sleeping to precarity to temporary accommodation has been rising in recent years. This is beyond the capacity of many councils to cope.

These forces combine to reduce mobility, lengthen commutes, keep adult children in the family home, stretch public services and lower home-ownership rates. This has helped make housing more of a battleground in the debate about immigration, asylum seekers and refugees, amid misunderstandings (or worse) regarding how social housing is allocated.

Council tax and devolution

In England and Scotland, incredibly, the valuation basis of council tax remains at 1991 prices. Cumulative growth in property prices as a proportion of income over 35 years is not taken into account ( between 1992 and 2023 house prices in England grew by 377% compared to median disposable household incomes growing by just 51%).

Meanwhile, the divergent housing policies across the UK’s four nations have been very noticeable. Scotland and then Wales abolished the right to buy; Scotland legislated for a strong rights framework to address homelessness; Wales then England (and now Scotland) have brought in stronger homelessness prevention laws.

The four nations have differing though converging approaches to the regulation of private renting, though only Scotland has tried rent control thus far. Devolution deals across England will also bring further housing divergence within England.

Finally, an influential short paper published in 2021 concluded that contemporary housing generates myriad economic, social and health-related problems, difficulties that require a systemic programme of long-term reform. It may take a further 25 years to reverse the problems we see across Britain’s housing today.

Business

John Colley, professor of practice, University of Warwick

Just over 25 years ago the dotcom boom collapsed. As finance was pulled from thousands of these businesses, most went bust. The boom had sucked investment away from traditional industries and into the brave new world of the internet.

The problem was that people weren’t ready for the immense change and the new business models would take time to become effective. So the early 2000s were littered with recent British failures like retailer Boo.com and health portal ClickMango. Among the few that survived – besides Amazon – the British names include travel broker Lastminute.com and retailer Asos.

Roll on 25 years and history may be repeating itself. Trillions of dollars are being invested in AI, predominantly in data centres. Major UK sites include Blyth, Northumberland , Waltham Cross, Hertfordshire and Motherwell near Glasgow.

Once again, investment is being diverted from many non-AI sectors in the gold rush. Professions ranging from lawyers and accountants to medical doctors and clerical work all know that AI is coming for their jobs, but the boom may well collapse before that happens. McKinsey for one believes that AI industry returns will fail to justify the investment.

Between these two events we have seen immense change in UK business, not least the rise of the gig economy and so much business now being conducted online. Taxis have vastly increased in number – from 63,000 in England in 2001 to 313,000 in 2024 – and the same is almost certainly true for takeaway food delivery people, as significant numbers of people are willing to work for low rates of pay.

High street shopping has collapsed over the same period, as the online share of UK retail has increased from very low digits to almost 30% today. Physical retail has shrunk back to a few major shopping centres, with high-street stores replaced by coffee and fast food outlets, and personal services such as barbers and nail bars.

Amazon may no longer necessarily be the cheapest, but it has become an extraordinary force in retail over the past 25 years. Its network of enormous distribution centres are dotted across the country. For many, this is the first point of call for almost everything except groceries.

The 2008 crisis

If the shift online has been the big theme, the key single event of the last 25 years was surely the banking crisis of 2008. Banks had to be rescued and have only recently been returned to the private sector.

The weakness in economic growth since then has meant that UK listed stocks have performed worse than inflation since 2001, rising 67% compared to a 93% rise in inflation. Many public companies have switched to a US listing – chip designer Arm, Paddy Power owner Flutter Entertainment, and heating/plumbing giant Ferguson are all examples. The perception is that stocks perform better there than in the UK. This has never really been proved, though we do know that board salaries are much higher in the US.

A bigger trend is that stock market-listed businesses have halved in number across the western world as vast sums of money have moved into private capital. This has taken the form of lots more private lending to businesses, and the rise of private equity , both of which have been encouraged by the fact that the low interest rates ushered in by 2008 made borrowing much cheaper.

The private equity model sees investors ploughing money into vehicles that borrow to buy companies and try and run them more efficiently. This has delivered much higher returns than investing in stock markets, such that private equity now contributes between a third and 40% of all global corporate transactions, and has quadrupled in size to almost US$5 trillion (£3.8 trillion) of assets under management.

The chances of someone working in a private equity-owned company in the UK are now high, whether they like it or not. Examples include Morrisons, Boots and Thames Water.

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