Atlantic aspirations

Think tank: Social Market Foundation

Author(s): John Handley

August 9, 2023

This report from UK think tank the Social Market Foundation looks at what does the US get for being a third richer than the UK.

Many have bemoaned the UK’s relatively low income compared to the US. This SMF briefing dives into consumption patterns in both countries to see how far this gap translates into a genuinely higher standard of living for Americans, and what the drivers of the difference in living standards are. The US is around 30% richer than the UK. That means the average American enjoys more of most goods and services than the average Brit, though British people spend more on clothing and footwear. Four categories – health, transport, housing, miscellaneous (largely private insurance) – account for 95% of the American advantage over the UK in living standards. Healthcare spending accounts for 12 of the 30 percentage point gap; housing 9 percentage points; transport 4 percentage points. In the case of healthcare and transport, it can be argued that the US wastes its economic advantages with socially inefficient and ineffective spending. Higher healthcare consumption might buy more convenience, but a range of poor social choices mean that outcomes are on average worse. Similarly, with transport, bigger cars and lack of walkability greatly increase the risk of death or injury on the road. The same cannot be said of housing. British people spend a comparable amount of money for properties 60% smaller on average. Housing conditions in the UK could be improved by increasing the size and quality of the housing stock, but policymakers must address the UK’s long-running productivity underperformance to truly close the gap in living standards with the US.