According to the Organisation for Economic Cooperation and Development (OECD), a sharp rise in tax payments and cuts to energy subsidies in the UK led to a significant decline in household incomes in the first quarter of the year.
In its review of 38 member states, the OECD stated that the UK ranked in the lower half of the income table as households faced a higher increase in tax payments compared to their counterparts in the US, France, and Germany.
The data revealed that real household incomes per capita, adjusted for inflation, grew by 0.9% in the OECD during 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 most significant rise since 2021 when incomes were supported by pandemic-related assistance programs.
Out of the 21 countries with available data, 11 experienced an increase in incomes, while 10 saw a decline, including the UK.
Changes in incomes aligned with government tax and spending programs, many of which were related to the pandemic or inflation crisis, as well as wage increases.
The UK and Germany were countries that allocated significant resources to protect household incomes through subsidy payments, while France and Italy supplemented income subsidies with caps on energy prices.
Consequently, household incomes grew in Italy and the US but declined in Canada, France, Germany, and the UK.
Canada experienced the largest drop (-2.2%) in real household income per capita, partially attributed to cuts in social benefits implemented last year to offset rising prices.
The OECD noted that both real GDP per capita and real household income per capita in Germany fell for the second consecutive quarter.
German households were severely affected by the increase in gas and electricity prices during the winter, and despite reducing consumption, they experienced a 1% loss in real income during the first quarter.
In France, the reduction of energy-related subsidies in the first quarter resulted in a 0.5% decline in household incomes. On the other hand, Italy maintained many of its subsidies, protecting household incomes, which rose by 3.3%.
The UK witnessed a 0.8% decrease in real incomes, mainly due to a significant increase in personal taxes paid in response to rising wages, spending on taxable goods subject to VAT, and wealth taxes, including inheritance tax.
Unlike the German economy, which contracted by 0.4% per capita, both the UK and French economies remained stagnant during the first quarter.
Italy, which experienced the largest increase in GDP per capita (up 0.7%) and the fastest rise in real household incomes during the first quarter (up 3.3%), benefited from substantial reductions in energy prices.
In the US, the OECD attributed a 1.7% increase in real household income per capita mainly to a decrease in taxes payable following a rise in 2022 due to increases in wages and salaries, deferred payment of 2020 taxes, and significant capital gains.
Among other OECD countries, Poland achieved strong growth in both real GDP per capita (3.9%) and real household income per capita (3.5%).
Large increases in real household income per capita were also observed in Denmark (4.3%), Belgium (4.1%), and the Netherlands (2.6%).