Regional Regeneration and the Outlook for the Devolved Nations and the English Regions

Arnab Bhattacharjee (), Eliza da Silva Gomes (), Adrian Pabst (), Robyn Smith () and Tibor Szendrei ()

National Institute UK Economic Outlook, 2025, issue 17, 43-85

Abstract: The living standards of the bottom 40 per cent of households will not return to pre-2022 levels before the end of 2027: while real personal disposable income is projected to grow by 1.9 per cent in 2025 and 1 per cent in 2026, this will not compensate for the fall in living standards – as measured by equivalised household real disposable income (eHRDI) which reflects household composition and housing costs – between 2022 and 2024. Households in the second income decile will be better off by about £2,400 in 2025-26 thanks to the successive and substantial increases in the National Minimum Wage (NMW) and the National Living Wage (NLW): for households earning approximately between £16,000 and £24,000, living standards (eHRDI) will be about 12.5 per cent higher relative to the "no uplift" counterfactual. For households in the second income decile, the effect of the rise in the NMW and NLW is higher labour market participation and lower unemployment rates: projected inactivity is lower by about 3 percentage points and projected unemployment rates are lower by about 1.5 percentage points. The rises in the employer rate of National Insurance Contributions and NLW/NMW are expected to harm the profit margins of businesses in labour-intensive sectors such as education, health and social work, real estate and transportation and storage. Our analysis of housing access reveals growing regional disparities in the United Kingdom: the 2008 financial crisis caused a sharp decline, with an uneven recovery; since Covid-19, variations have widened, reflecting widening affordability, employment trends, and regional impacts of government intervention. Regional disparities in transport connectivity across the United Kingdom persist, with public transport lagging behind private car travel. After the release of the English Devolution White Paper, we welcome the government's commitment to introduce Mayoral Combined Authorities for areas that currently lack them: while tidying up institutional arrangements is important, we reiterate our call for at-scale investment and further fiscal decentralisation.

Date: 2025
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