In the News Teaching Activity – the disposable income squeeze continues (Oct 2024)

Why was disposable income at the end of 2023 still lower than pre-pandemic levels?

Disposable income in the UK has declined, with the average household seeing a 2.5% drop in 2023 compared to the previous year. Fiscal drag and frozen tax thresholds are key factors, pushing many into higher tax brackets without corresponding increases in purchasing power. While the poorest households benefited from government cost-of-living support, income for the richest fell by nearly 5%. Despite wage growth, many middle- and upper-middle-income families face higher taxes, limiting disposable income growth across the board.

Household disposable income drops (yourmoney.com)

1. Explain what disposable income is.

2. According to the article, why has disposable income not risen in recent years?

3. Discuss how the stagnation of disposable income growth is likely to affect aggregate demand.