Britain's poorest households worse off than those in Slovenia, think tank says

LONDON (Reuters) - Britain's poorest households are worse off than those in Slovenia and Malta after nearly two decades of stagnation in UK living standards, a think tank said, underscoring finance minister Rachel Reeves' challenge in this month's budget update.

The National Institute of Economic and Social Research said despite Britain's ranking as the world's sixth-biggest economy, inequality between the country's rich and poor regions had worsened since the 2008-09 global financial crisis.

Meanwhile, growth in Europe's less developed economies had been strong.

In a report published on Wednesday, NIESR found that half of Britain's wage stagnation since 2008 was due to slow productivity growth, something Reeves is aiming to fix with more public investment and less red tape.

Tight rules on welfare in Britain also had an impact with benefits spending among the least generous across a range of similar economies when compared with average wages, NIESR said.

Reeves is reportedly considering cuts to welfare benefits as she prepares for a half-yearly update on the public finances on March 26. It is expected to show her off course to meet her rule to balance day-to-day spending with tax revenues by 2030.

"Economic stagnation over the past decade is now threatening the UK's position as a place for a high standard of living," Max Mosley, a senior economist at NIESR and the report's main author, said.

"That the poorest in our country now fare worse than those in nations once considered less affluent is a stark indictment of the UK's economic social model," Mosley said.   

NIESR said while Britain's poorest 10% might be better off in cash terms than their counterparts in Slovenia and Malta, they fell behind once Britain's higher cost of living was taken into account.

It said the value of welfare payments in Britain had been below the cost of household essentials in 12 of the last 14 years - with the only exceptions being in 2020 and 2021 thanks to a temporary welfare boost during the COVID-19 pandemic.

The think tank said removing Britain's two-child limit for additional welfare benefits represented the most effective way to reduce poverty. Cuts to value-added tax rates would also give a disproportionate boost to low-income households as they spend a bigger share of their income on essentials, it said.

(Writing by William Schomberg; editing by David Milliken)