The economy forecast

Income

This Forecast in-depth page has been updated with information available at the time of the March 2026 Economic and fiscal outlook.

The composition of GDP can be as important to the fiscal forecast as the headline total, because some components are more ‘tax rich’ than others. A forecast that alters the composition of GDP can therefore have a significant impact on the public finances, even if the path of GDP itself is the same.

The income approach to measuring GDP, known as GDP(I), estimates the money earnt – predominantly by households and companies – from total output in the economy. Various elements of household income are key drivers of public sector receipts. The single most important element is total wages and salaries earned by employees, which is the main driver of income tax and national insurance contributions (NICs). Corporate profits are the key driver of corporation tax receipts.

  Household disposable income

Our forecast for household disposable income is built up by forecasting its components, which split into three main groups: labour income, taxes and benefits, and non-labour income:

  • Labour income is made up of wages and salaries, and ‘mixed income’. Our forecast for wages and salaries uses our forecasts for average earnings growth and the number of employees. Mixed income is largely composed of self-employment income, which we derive from our forecasts of self-employment and whole economy average earnings.
  • Most of our forecasts of net benefits and taxes – such as PAYE income tax, tax from self-assessment and social benefits – come directly from the relevant components of our fiscal forecast. These forecasts change response to policy, and in many cases will depend on other elements of the economic forecast.  For example, our forecast of income tax depends on our forecast for wage growth. Net benefits and taxes also includes a number of employee social contributions, such as employee NICs, which is drawn from our fiscal forecast.
  • Non-labour income includes interest receipts, interest payments, dividend income, household operating surplus, employee pension contributions, withdrawals of income from quasi-corporations (such as income withdrawn from the profits of partnerships by their owners) and miscellaneous transfers. We forecast these elements separately using a variety of approaches:
    • Our forecasts for interest receipts and payments depend on our forecasts for deposit rates, mortgage rates and the stocks of household assets and liabilities.
    • Our forecast of employee pension contributions  combines our forecasts of the gilt rate and closing pension liabilities, consistent with the measurement of this variable in the National Accounts. We also make adjustments for the effects of relevant policies (such as auto-enrolment).
    • Household operating surplus relates to the National Accounts concept of imputed rent, which represents an estimate of the housing services consumed by owner-occupiers. As this spending is imputed, the income side of the National Accounts also includes the imputed rental income. (Including both imputed flows means that the size of GDP does not change if the proportion of dwellings that are owner-occupied shifts.) Household operating surplus is equal to imputed rental on owner occupied dwellings less the current expenses that go into the upkeep of those dwellings (such as certain repairs and interest costs). As we estimate this using data on actual rents, our forecast of this component is partly based on the expected growth of actual rental income.
    • Other elements, such as dividend income, withdrawals of income from ‘quasi-corporations’ and miscellaneous transfers are typically assumed to grow in line with other elements of income, such as wages and salaries or profits, with relevant items in our fiscal forecasts, or with nominal GDP. Dividend income rose as a share of household income in the decade before the pandemic, largely reflecting a significant increase in the number of people setting themselves up as single-director companies, rather than working as an unincorporated self-employed worker or an employee. We do not directly adjust our economy forecast for the effect of incorporations on dividend income, wages and salaries or mixed income. Instead, we factor this into our fiscal forecast, which allows us to capture the effects of incorporations on individual tax receipts more accurately – for example, the incentive to incorporate changes along the income distribution, which affects the size of the required adjustment to our tax forecasts.

Real household disposable income (RHDI) adjusts the nominal figure by the consumption deflator. RHDI growth slowed significantly after the financial crisis, going from an average of over 3 per cent a year between 2000 and 2007 to around half that pace from 2008 to 2019. The pandemic and the period of high inflation afterwards saw significant volatility and, despite a sharp recovery in 2024 and 2025, RHDI growth only averaged around ¾ per cent a year between 2020 and 2025. In the March 2026 forecast, we expect RHDI to grow at a similar average of around  ¾ per cent a year between 2026 and 2030.

We often also look at RHDI on a per person basis. This is a better indicator of living standards, as it strips out the effects of changes in the population size. On a fiscal-year basis, RHDI per person fell more than 3 per cent in 2022-23 – the largest annual drop in living standards since records began in the 1950s. Resilient real wage growth supported average RHDI per person growth of just under 2 per cent a year over 2023-24 and 2024-25. But we forecast average growth of under ½ per cent a year from 2025-26 to 2030-31.

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  Corporate profits

There are three elements to our forecast for corporate profits:

  • North Sea profits. We assume these grow in line with our forecasts for nominal North Sea output (derived from our forecasts for North Sea production) and the price of oil, which are determinants of our oil and gas revenues forecast.
  • Non-North Sea private non-financial corporation (PNFC) profits. As a starting point for PNFC profits, we adjust its share in nominal GDP to broadly mirror changes in the labour share. We also factor in the effects of any relevant policy measures. Non-North Sea PNFC profits are a key determinant of our onshore corporation tax forecast. When building this forecast, we also consider what our results suggest for the path of the corporate rate of return on capital – profits divided by the value of the capital stock.
  • Financial company gross trading profits. These are a residual after taking into account our expenditure-driven forecast for total nominal GDP and our forecasts for all other components of income GDP. Even in outturn data, the National Accounts concept of ‘financial company gross trading profits’ can follow an unintuitive path. For example, the series has been negative for long periods. We do not use this variable for the fiscal forecast, where a separate assumption is made about future financial company profits using a measure consistent with company tax returns.

While the role of corporate profits as a residual in the income forecast is required by identity, so that the income and expenditure measures of GDP are equal, it also serves as a useful diagnostic on the nominal GDP forecast in general. If, for example, we considered the residual profile for financial company profits implausible, we would revisit other forecast judgements on income or nominal GDP in subsequent rounds of the forecast.

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  Whole economy income

The preceding sections of this page describe how we forecast some of the biggest income components of GDP – labour income, household operating surplus, and corporate profits. Together these make up around four-fifths of GDP by income. The full GDP(I) forecast comprises:

  • Labour income(wages and salaries and mixed income).
  • Employer social contributionsare made up of employers’ national insurance contributions (NICs) and employers’ pension contributions. The first of these comes directly from our forecast of the public finances. And we generally assume the second grows in line with wages and salaries, plus any adjustment for the effect of relevant policies. These could include the coverage and rates associated with auto-enrolment into pensions.
  • Household operating surplus(largely imputed rental income for owner-occupiers).
  • Corporate profits(onshore PNFCs, North Sea, and financial companies).
  • Operating surplus of general government and public corporations, basic price adjustmentand net taxes on products. These all derive from our forecast of the public finances.
  • Other smaller elements of income include corporate rental income, which we assume grows in line with nominal GDP; stock appreciation, which arises from our forecast for nominal inventories; and financial intermediation services indirectly measured (FISIM), which is related to interest rate spreads and stocks of assets and liabilities, and is the sum of FISIM flows in the household, corporate, government and foreign sectors.

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