The average salary in the UK may or may not be enough to give you the disposable income you need to secure the lifestyle to which you aspire in retirement. According to estimates from the Office for National Statistics (ONS), the average disposable income in the UK per household, for the financial year ending (FYE) 2023 was £35,500. It represents a 2.5% drop from FYE 2022.
| What counts as disposable income? | Money that is used to pay rent, utilities, food, clothing, insurance, etc |
| Does disposable income have an impact on the economy? | Definitely. It is used as a measure of economic health |
| Can disposable income impact a person’s ability to save for retirement? | Absolutely |
| Does disposable income vary between different regions of the UK? | Unfortunately, there is income inequality between regions |
What is a good amount for disposable income?
A good disposable income amount would be enough to finance a good standard of living and leave some money over for saving or investing. But with the cost of living rising as much as it has over the past few months, fuelled by the highest inflation figures since the 1980s, based on average UK wages, most households are finding out that they need more income before they consider it to be a good amount.
Even though inflation has fallen, it comes as scant relief for many households. The fact of the matter is that according to the House of Commons Library, over the three years from May 2021 to May 2024 food prices rose by a whopping 30.6%.
How is average household disposable income in the UK calculated?
The average disposable income UK figures are calculated by taking the earnings from employment, income from investments and personal pensions, and any cash benefits provided by the UK government and deducting any direct taxes.
What is the average disposable income in the UK per month?
The average disposable income in the UK per month has been on the rise since 2003. According to the UK Government, the average weekly disposable income in the UK was £539 in 2021. This means that the average disposable income per month was £2,156, and around £28,100 per year. This figure is the median household income before housing cost has been deducted. The average income per month after housing costs swas reduced from £2,156 to £1,888 per month, and around £24,600 per year.
According to Family Source Survey, in the 3 years to March 2021, 45% of households in the UK had a monthly income of below £2,400, 30% of households had a monthly income of £4,000 or more, and 7% of households had a monthly income of £8,000 or more. These figures are before tax has been deducted.
This historical data shows the recent trend for average disposable income in the UK. The latest medium household income figures are shown below.
How Disposable Income Affects Saving and Spending in the UK
The size of the UK average disposable income figure is the main driving force when it comes to how much people spend and save. On a national scale, a £40k salary is considered quite decent. It allows a reasonable amount of disposable income for spending and saving. However, given that the average savings per person in terms of their retirement are way below where they need to be, this focus needs to change.
Latest government figures for median household income
The latest median household figures available from ONS website in terms of UK average disposable income are to the FYE 2023. They show disposable income at £34,500 for the year – a decrease of 2.5% from the previous year.
For the poorest 5th of the population, disposable income increased by 2.3% from the previous year, to stand at £16,400, as opposed to the richest 5th, whose income decreased by 4.9% to stand at £68,400.
Factors affecting disposable income in the UK
The biggest factors that affect average disposable income in the UK are the average wage, and the cost of living, taking inflation into account, both of which are discussed further in the next section. However, we cannot overlook the significance of Russia’s invasion of Ukraine in 2022. It was responsible for huge increases to the cost of energy, which in turn, led to the significant increases in the cost of other essential goods and services.
Average salary vs cost of living in the UK
According to the ONS, statistics published for May to July 2024, annual salary growth in real terms (adjusted regarding inflation as per the CPI, which included owner occupiers’ housing costs (CPIH)) was 2.2% for regular pay and 1.1% for total pay, total pay being income that includes bonuses.
The annual growth figure in terms of regular earnings (those excluding bonuses) was 5.1% in May to July 2024. The last time that growth was lower was in April to June 2022 figure, when it was 4.7%.
The fact of the matter is that over the last 15 years, to 2023, the average disposable income in the UK (in median terms), only rose by 7%. This compares to an increase of 41% over the previous 15-year period.
Income Distribution Across Different Age Groups
Income distribution across different age groups in the UK reveals a complex pattern that reflects various stages of life and career development. In general, younger individuals, particularly those in their early 20s, tend to earn less as they are often in entry-level positions or pursuing education.
As individuals progress into their 30s and 40s, they typically experience a rise in earnings, reflecting career advancement and increased experience. This trend often peaks in the late 40s to early 60s, where many reach the height of their earning potential.
The average disposable income in the UK then tends to decline as individuals transition into retirement, with many relying on pensions and savings. Understanding this age-related income distribution is essential for policymakers and economists, as it provides insights into economic well-being, social mobility, and the effectiveness of various financial support systems across different life stages.
Which cities in the UK have the highest and lowest living costs?
A quick look at the list of “The richest and poorest cities in the UK” reveals that while London has by far the highest average monthly salary rate at £2,410.86, it also shows that at £2,149.89 per month, it not only has by far the highest monthly costs, but the lowest remaining income, at a mere £260.97 per month.
Aberdeen is the top city in the UK, with the second-highest average monthly salary rate of £2,278.66, the second-lowest monthly costs at £780.84, and the most remaining income at £1,497.82.
You can check out the full list on the cv-library.co.uk.
Trends in disposable income over time
Looking back over the past 10 years, there has been continual growth in the average disposable income in the UK, which indicates that people have the opportunity to develop an investment strategy. One way of increasing average UK disposable income is investing for income – additional income, that is.
Another path for people looking to increase their average disposable income in the UK per month is to start up a side business of their own. According to BBC news, the first year of the COVID pandemic saw an 8% increase in new start-ups.
Those deciding on this course of action can take advantage of the trading income allowance scheme whereby you’re entitled to tax rebates on earnings under £1,000.
Whatever it is you may decide to invest in – a start-up, a sideline, or one of the various types of ISAs; it’s crucial to get your financial planning right. Even with the average discretionary income in the UK rising, it’s still important to have some savings tucked away for emergencies or unforeseen circumstances.
Comparison with other countries
Unfortunately, when comparing the average disposable income in the UK with that of other nations, we are not doing as well as one might hope.
As of 2022, the top 5 were:
| Country | 2022 Disposable incomeper household/capita |
| United States | $51,147 |
| Luxembourg | $44,773 |
| Switzerland | $39,697 |
| Norway | $39,144 |
| New Zealand | $39,024 |
This data is courtesy of the WorldPopulationReview.com website. The average disposable income in the UK after bills puts the UK in 14th position on the list.
Why is disposable income so important?
How much disposable income you have governs the lifestyle you can live and your ability to save and/or invest. Investing for the future may seem insignificant, especially in your 20s. But as life progresses, its importance will become more apparent – especially for retirement.
Retirement is a fact of life that most of us will come face-to-face with one day regardless of the industry in which we work. Having the average expendable income in the UK (the same as the average disposable income) might mean you can achieve the average retirement income, but will it be enough? Taking your financial state and any workplace pensions into account, you still might be left short of your ideal retirement income.
The impact of inflation on disposable income in the UK
The only good thing to come out of the recent, tragic COVID pandemic here in the UK, is that it gave some people the opportunity to consider their financial positions. It made many realise that they were way behind target in terms of attaining even the average retirement income. They began to think about opening investing accounts rather than just putting money into savings accounts. It’s just as well, because the rampant inflation that was about to follow, decimated disposable income for many, and money left languishing in easy access savings accounts significantly lost value in real terms.
Have you considered investing yet?
If you’re on a £50k salary, depending on where you live, you’re doing reasonably well. Leftover funds from the average disposable income in the UK can be put towards investing. Knowing how to invest money can not only protect your savings against erosion due to inflation, it can help you to save towards things like buying your first property, seeing your kids through university, and helping to ensure a decent retirement income – even if you only match the average household disposable income here in the UK.
Workplace pensions and other personal pensions, including SIPPs, are ideal for retirement savings but have one drawback. Your money is tied up in time until you reach state pension age. Yes, you can access 25% tax-free when you reach 55, (changing to 57 in 2028) but you might not want to, as it will detract from your final pension pot.
ISA Tax Wrappers
A stocks and shares ISA has all the benefits of a pension because it’s a tax wrapper, and you can access your pot when necessary. People may think that a stocks and shares ISA is the best ISA, as it can be structured to provide a boost to an average disposable income here in the UK. Not only that, but being a tax wrapper, the interest (including dividend payments) earned from an ISA is tax-free.
But it is very much down to the individual. Investments carry risk. The value of funds in your account can fall as well as rise. But bear in mind – that is no different to most defined contribution workplace pensions or SIPPs.
FAQ
What is disposable income?
Disposable income is the amount of money an individual or household has available to spend or save after taxes, and mandatory deductions have been paid.
What factors can affect the average disposable income in the UK?
Several factors can impact an individual’s or household’s disposable income. They include income level, location, employment status, age, and family size. In addition, other economic factors, such as the cost of living and inflation, can also impact disposable income.
What is the average disposable income in the UK per month?
Median household figures available from ONS website (as at the end of the 2023/2023 tax year) show the median disposable income as £34,500 per annum, or £2,875 per month.
How can I increase my disposable income?
There are several ways to increase your disposable income. First, you can earn more money by negotiating a higher salary, getting an additional job, or starting a side business. You can reduce your expenses by lowering utility bills, finding affordable housing or transportation options, and limiting unnecessary spending. You can also reduce your tax liability. Finally, paying off any debt will reduce your monthly expenses. Budgeting and managing expenses more effectively can also increase disposable income.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
