For much of the past century there has been an implicit social contract at the heart of our economic system. The assumption has been that, while there might be ups and downs along the way, children would grow up to enjoy a higher standard of living than their parents. Since the global financial crisis in 2008 however, this social contract has broken down. Across the UK, households have experienced an unprecedented squeeze on living standards, leaving many people materially worse off than their parents were. But how much has this actually cost people where it matters i.e. in their pay packets? The results may shock you.  

Before 2008, real weekly earnings (earnings after adjusting for inflation) in Scotland increased by 2.2% each year on average. While not spectacular growth, this ensured that living standards were rising, as people could afford to buy more goods and services with their wages. In the aftermath of the global financial crisis in 2008 however, real weekly earnings fell sharply. Although earnings started to recover slightly from 2015 to 2021, they declined by 5% once again in 2022 due to surging inflation – representing the largest decline in real weekly earnings in Scotland since the financial crisis. By 2024, real median weekly earnings for full-time workers were just £8 higher than they were 16 years prior in 2008 – equivalent to an increase of just 1% over the past 16 years. This is unprecedented: never in modern times have Scots seen their earnings grow so little over such a long period. 

This raises an obvious question: how much better off would we be if wages hadn’t flatlined, and instead continued to increase as normal? Although this is a hypothetical scenario, it enables us to assess the real world consequences of poor economic performance. If real earnings had instead grown at their pre-financial crisis trend of 2.2% per year since 2008, the average Scottish worker would be £297 a week better off – equivalent to over £15,000 per year. 

Today the average full-time worker in Scotland earns £38,464 a year. If earnings had instead grown in line with pre-crisis trends, the same worker would be earning £53,923 today. For many households, £15,000 is a huge sum of money – and is the difference between economic security and living on the breadline. Although real earnings are now rising slowly again, the long-term damage inflicted on household finances has been immense. 

What caused such a prolonged squeeze on earnings, and how do we avoid repeating it in future? The root causes are multifaceted, but among the most significant was the UK Government’s post-crisis turn towards austerity. The evidence is clear that austerity stifled demand, undermined productive capacity and squeezed living standards. As well as being counterproductive, it was wholly unnecessary. 

The squeeze on living standards was further exacerbated by the Covid-19 pandemic, which triggered the deepest recession on record and caused profound disruption in the labour market. The return of high inflation after the pandemic, fuelled by rising energy prices, further reduced real wages sharply at a time when many were still suffering from the pandemic. While countries across Europe experienced rising energy prices following Russia’s invasion of Ukraine, the UK experienced among the largest energy price rises. This reflects the UK’s heavy reliance on natural gas for final energy consumption, which is among the highest in Europe. Despite the large increase in renewable energy generation in Scotland over the past decade, wholesale electricity prices remain linked to natural gas prices, meaning that inflation eroded living standards more in the UK than in other European countries. At the same time, fossil fuel companies recorded record profits. Our pain was their gain. 

Overall, the period since the global finance crisis has been extremely challenging for households across Scotland. As we enter an election year in Scotland, it is critical that raising living standards is at the centre of the economic debate. People across Scotland simply can’t afford yet another five years of economic failure. 

In recent weeks, some politicians have sought to scapegoat immigrants for the country’s economic failures. But in reality there is no evidence that immigration is to blame for the UK’s wage stagnation, and Scotland’s economy desperately needs more immigration to counteract demographic trends. The real culprit lies not with migrants, but a broken economic model. 

As we approach the election in May 2026, it is critical that the policy debate matches the scale of the challenges we face. Scotland cannot overcome the intertwined challenges it faces by making minor tweaks to the status quo, or reheating old economic orthodoxies. Instead, political parties must embrace bold new ideas to transform the economy. Future Economy Scotland will be publishing policy priorities for the election over the coming months.