Why are British salaries so low? [Updated for 2023]

The British public has spent much of 2022 and 2023 living in the fear of recession and facing a cost-of-living crisis. For the nation, focus has shifted to our bank balances and the constant swaying of the scales as we try to balance hard-earned salaries with our mounting outgoing bills. In light of this challenge, whole workforces (such as NHS, rail, teachers, etc.) have taken to striking in demands for improved wages, and candidates on the job hunt are citing salary as the reason they’re looking for new opportunities.

In Britain, a significant issue looms large, contributing to widespread job dissatisfaction. When compared to the United States and many European countries, salaries in the UK rank among the lowest. This disparity in compensation levels creates a challenging situation for workers, impacting their financial well-being and overall job satisfaction.

In the global landscape of wages and compensation, a striking disparity exists between salaries in the United Kingdom and the United States. British workers often find themselves earning considerably less than their North American counterparts in similar roles. In fact, it’s no secret that on average in the US, workers earn considerably higher wages than those in the UK. This wage gap has become a point of contention for those considering where to pursue their long-term futures. The wage gap has sparked debates and raised questions about the underlying factors contributing to such differences.

In this article, we’ll explore the various elements that contribute to the lower salary levels in the UK compared to the US.

The challenges of working in Britain

It’s no wonder that UK employees are more unhappy than others. In fact, according to the UK’s largest study of work happiness, as reported by The Independent, over a third of the UK’s working population - a staggering 36% of people surveyed - reported that they are unhappy in their jobs. With lower wages but higher taxes and a higher cost of living than the US, British workers are having a hard time of it. In fact, European workers in general are working for half of the salaries of their US counterparts.

To help understand this disparity, here are some key challenges individuals working in the UK may face:

• Cost of living: The cost of living in many parts of Britain, especially in major cities like London, can be significantly higher than other major business hubs. When salaries are relatively low in comparison, this can create financial strain and make it challenging to cover basic expenses such as housing, transportation, and daily necessities. The UK’s inflation remains almost stuck at 8.7%, causing further concern for those with mortgages too. It’s clear to see that the cost-of-living crisis has led to a reduced quality of life for many and limited disposable income across the board.
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• Affordability of housing: The housing market in Britain, particularly in urban areas, is often characterised by high property prices and limited affordable housing options. Since the Covid-19 pandemic, the demand for property in rural areas has also soared, making affordability even in remote locations unattainable for many. Low salaries can make it difficult for individuals to afford decent accommodation or secure mortgages, resulting in a higher proportion of disposable income being spent on housing costs and making it challenging to establish long-term stability.
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• Limited savings and retirement planning: Inevitably, with lower salaries comes less available cash for investment. In the UK, according to the Office for National Statistics (ONS), “more than 4 in 10 adults (42%, equal to around 22 million people) said they did not expect to save any money in the next 12 months”. With the general public struggling to save adequately for their future, it’s also unlikely that they will have sufficient money left at the end of the month to save into a suitable retirement fund. Insufficient savings create financial vulnerability and limited options for future investments, and further add to concerns about long-term financial security.

• Career advancement and progression: Low salaries can present a significant obstacle to career advancement and progression. When wages fail to align with an individual's skills, experience, or qualifications, it can undermine motivation and discourage employees from actively pursuing professional development opportunities. Consequently, this lack of motivation leads to reduced job satisfaction and limited upward mobility within the workplace. The financial constraint imposed by low salaries hampers individuals' ability to invest in their own growth and hinders their potential for career growth and success.
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• Financial stress, health and wellbeing: Financial stress resulting from low salaries has a detrimental effect on an individuals' mental and emotional wellbeing. Constantly worrying about making ends meet, struggling with debt, or not being able to afford basic needs can lead to increased stress, anxiety, and overall dissatisfaction with both work and life. Not only this, but with increased stress and anxiety comes a slew of other related health concerns such as headaches, high blood pressure, insomnia, ulcers, and heart disease.

To address the difficulties faced by those earning lower incomes in Britain requires a multi-faceted approach. Advocating for fair wages, promoting policies that support affordable housing, enhancing career development opportunities, and addressing income inequality must all be considered for a more equitable and sustainable working environment in Britain.

So why are salaries in the UK so much lower than the US?

To understand the present-day disparity in salaries between the United Kingdom and the United States, we must consider cost of living influences. These factors encompass a variety of economic, social, and cultural aspects that contribute to the differences in income levels between the two countries. By examining the economic structures and employment standards, we can gain deeper insights into the complexities that shape salary discrepancies and shed light on the unique challenges faced by workers in the UK.

Perhaps the biggest contributing factor to the difference in pay in the UK and the US boils down to British subsidised social benefits, specifically the NHS, our free healthcare system. The healthcare system in the US is known for its complexity and high costs, involving various stakeholders such as providers, payers, and patients. Health insurance, in particular, can be quite expensive, making it a significant factor when evaluating job benefits. Offering health insurance coverage is highly valued by employees, as it provides a real and valuable benefit.

While employers are legally required to contribute towards health insurance premiums in the US, employees may still bear a significant portion of their healthcare expenses due to the availability of different plans with varying levels of coverage. According to the Milliman Medical Index, healthcare costs for a hypothetical family of four (covered under an average employer-sponsored preferred provider organisation (PPO) plan) will rise to $31,065 in 2023, up approximately 5.6% from 2022. Comparatively, in 2020 the ONS reported that the total healthcare expenditure in the UK was £257.6 billion, equating to £3,840 per person or an estimated £15,360 for a family of four.

Pension plans highlight another area where the British experience greater financial strain compared to their counterparts. In the UK, employers are required to contribute 3% of the minimum 8% pension contribution, placing a burden on both employers and employees. In contrast, employees in the US have the freedom to establish their own pension plans and contribute according to their preferences, without being bound by any minimum contribution requirements.

While a lack of mandatory pension plan contribution could arguably be seen as both a positive and a negative, this distinction in pension regulations further emphasises the differences in employment standards between the two countries. While Brits may feel the pinch in the short-term, even a basic pension can stand them in better stead come retirement than those who haven’t saved for a pension at all.

When it comes to the social welfare environments the UK and the US are again at opposite ends of the scale. The UK, compared to the US, have more holiday pay and more sick pay. UK employees are entitled to an allowance of up to 28 weeks of paid sick leave, via Statutory Sick Pay; however, dependent on the state, in the US some employees aren’t entitled to any paid sick leave days at all.

In Britain, almost all full-time employees are entitled to 5.6 weeks of paid holiday, while in the US, there is no national requirement for paid holidays. Europeans tend to have more public holidays than the US too. In the UK employment standards regarding annual leave are governed by the Working Time Regulations 1998, which also govern the maximum number of hours worked in the week (48 hours unless workers opt out). These employment laws also support paid annual leave, annual leave accrual, bank holidays in lieu, and entitlement to tribunal claims.

The cost of living varies between European countries too. For example, the cost of living in the UK and Denmark is considerably higher than in Germany, as we pay much higher taxes than Germans. But it’s not just taxes that we should consider either; social security contributions also vary. Where Danish citizens pay more in taxes than the Germans, they also pay less social security. While the US also varies state-to-state on their taxes, the difference isn’t as apparent as in Europe.

Switzerland is often cited as the most expensive country in the world, but compared to the UK, they seem to have things well balanced. While property prices in Zurich and Geneva seem astronomical to most, the high salaries throughout the country give way to a high standard of living, and ergo, higher property prices. In Switzerland health insurance is mandatory too. It covers basic health costs, such as visits to the doctor and some hospital tests and treatments (it’s compulsory for everyone, even babies!) It also offers subsidies for those on lower incomes. But with the necessary expense of health insurance comes one of the best healthcare systems in the world, further contributing to their higher standard of living.

The stagnation report

The 2022 ‘Stagnation nation’ report from the Resolution Foundation highlighted a widening prosperity gap between the UK and five comparable nations; France, Germany, Australia, Canada, and the Netherlands. Due to a lack of effort to correct inequality and weak growth over the last 15 years, the average British household is now £8,800 worse off than counterparts in these comparable countries.

The Resolution Foundation went on to state that due to the rich/poor gap, the top 10% of households in Britain are richer than those in many European countries. However, middle-income British households are 9% poorer than their counterparts in France, and the most impoverished fifth of households in Britain are over 20% poorer than their parallel demographics in France and Germany.

Director of the Centre for Economic Performance at the London School of Economics, Stephen Machin, commented:  

“High levels of inequality, real wage stagnation and flatlining productivity have characterised the evolution of the UK economy for a long time.”

The benefits of working in Britain

While salaries may be lower in the UK, this in part is responsible for some of the benefits to working here over working in the United States. Here are some of the advantages UK employees in Britain can expect:

• Access to free healthcare: Living and working in the UK means you are entitled to care under one of the four National Health Services (NHS) that serve the UK. This service provides free healthcare to all and ensures the UK population has access to comprehensive medical services without the need for costly health insurance. The NHS covers essential healthcare needs, including doctor visits, hospital stays, and prescriptions, providing a sense of security and peace of mind, especially when you’re on a lower wage.
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• Strong worker protection laws: In Britain, worker protection laws are in place to prioritise the rights of employees and foster improved employee well-being. These laws govern a range of areas including regulating working hours, ensuring fair treatment to all, safeguarding against discrimination, and establishing processes for addressing workplace grievances. By providing these essential protections, Britain cultivates a work environment that is safe, supportive, and conducive to maintaining a healthy work-life balance.
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• Generous annual leave and public holidays: British employment standards typically include generous annual leave allowances and a range of public holidays. Full-time employees in the UK are entitled to a minimum of 28 days of paid annual leave per year, including public holidays. Depending on the industry and employer, employees can enjoy a considerable number of paid vacation days each year, allowing for rest, relaxation, and the opportunity to holiday or decompress from a busy working life.
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• Work-life balance: Curtesy of rigorous employment laws and statutory leave policies, the work culture in the UK often emphasises the importance of maintaining a healthy work-life balance. Over recent years, the UK workforce has further benefitted from flexible work arrangements, extra support for parental leave, and a more relaxed approach to work, enabling individuals to enjoy personal time and pursue their interests outside of the workplace. There has even been a surge in popularity and up-take for a four-day working week, remote working, and work-from-anywhere policies too.

• Education and professional development: Britain is home to renowned educational institutions and offers a wide range of educational and professional development opportunities. The country's strong educational infrastructure and diverse learning options allow employees to pursue higher education, acquire new skills, and access specialised training. Continued development has become intrinsic for those looking to climb the work-ladder, and the UK’s upskilling ethos supports these workers across the spectrum with subsidised and free training widely available.
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• Travel and cultural experiences: Britain's geographical location lends itself to close working relations with Europe. For those looking for travel opportunities in their role (or in their free time), the UK is well located for easy access to dozens of countries. With a host of different destinations on the doorstep, both business and leisure can provide opportunities to explore the rich cultural treasure trove mainland Europe has to offer.

While the advantages of working in Britain are significant, it's essential to consider individual preferences, career aspirations, and personal circumstances when weighing the decision to work in Britain or the United States. Ultimately, the decision as to the UK or the US is better depends on various factors, including career goals and lifestyle preferences.

Key takeaways

In the UK, “real” wages have fallen at the fastest rate in over 20 years. With the rising cost of living and inflation, it’s no wonder that UK workers are feeling the need to request higher salaries. Over recent years, several cumulative events have brought the UK economy to the dire straits it’s in now. The UK faces a critical juncture, with ongoing challenges of an impending recession while still grappling with soaring inflation rates – the likes of which haven't been seen for forty years.

This cost-of-living crisis can be attributed to the global surge in fuel prices, which in turn stems from the disruptions to supply caused by the ongoing conflict between Ukraine and Russia. The impact of these factors has placed significant strain on the UK economy and further intensified the economic challenges faced by those living and working here.

But we must remember that the cost of living across countries can differ significantly due to a range of factors. More affluent nations typically experience higher costs of living, driven by factors such as elevated wages, property prices, and overall expenses. Additionally, factors like taxation policies, government regulations, infrastructure, and cultural norms all contribute to shaping the cost of living in different countries. So, to understand why there is such dramatic differences in salaries by country, we must consider these multifaceted elements.

When examining the minimum wage alone, the United Kingdom ranks fifth globally, far surpassing countries like the United States (which doesn’t even rank in the top ten). The UK follows Luxembourg, Australia, New Zealand, and is just slightly behind Germany. However, evaluating the true value of minimum wage requires considering its relation to the average earnings of full-time workers. In this regard, the UK faces a significant challenge, as it has the highest proportion of low-paid workers in northwest Europe. Former British Prime Minister Boris Johnson had attributed low wages in the UK to the EU and European Single Market. However, we can see now, that is just not true.

So, the challenges surrounding low salaries in the UK stem from a combination of factors - specifically, the cost-of-living crisis, global fuel price surges, and economic uncertainties. These issues have led to a decline in "real" wages, exacerbating the financial strain on workers and becoming increasingly apparent in low British salaries.

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