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Household incomes in UK 'may return to 2005 levels' | Household incomes in UK 'may return to 2005 levels' |
(40 minutes later) | |
Households in the UK may be facing the biggest drop in income for 30 years, a leading economic think tank has warned. | Households in the UK may be facing the biggest drop in income for 30 years, a leading economic think tank has warned. |
The Institute for Fiscal Studies said median take-home incomes had actually increased during the recent recession. | |
But the institute's analysis of latest government figures suggested it was "entirely possible" that median incomes dropped by 3% in 2010-11. | But the institute's analysis of latest government figures suggested it was "entirely possible" that median incomes dropped by 3% in 2010-11. |
The policy group said such a fall would leave median income levels back where they were in 2005. | The policy group said such a fall would leave median income levels back where they were in 2005. |
'Pain delayed' | 'Pain delayed' |
According to the Institute for Fiscal Studies (IFS) the squeeze from the recession on household incomes in the UK is only now being felt. | According to the Institute for Fiscal Studies (IFS) the squeeze from the recession on household incomes in the UK is only now being felt. |
While new data shows average incomes rising faster than inflation in 2008-10, it says in the 2010-11 fiscal year they may have undershot. | While new data shows average incomes rising faster than inflation in 2008-10, it says in the 2010-11 fiscal year they may have undershot. |
The IFS also said child poverty had fallen but not by enough to meet the old Labour government's target. | The IFS also said child poverty had fallen but not by enough to meet the old Labour government's target. |
Tony Blair's government said it would halve child poverty by 2010, but the IFS said that it would only have fallen by a quarter. | Tony Blair's government said it would halve child poverty by 2010, but the IFS said that it would only have fallen by a quarter. |
IFS research economist Wenchao Jin said: "The figures tell a story of pain delayed, but not pain avoided. | |
"Average living standards rose over the recent recession, likely to be driven by large increases in benefits and tax credit rates. | "Average living standards rose over the recent recession, likely to be driven by large increases in benefits and tax credit rates. |
"However, this type of growth cannot be sustained in the long term, and the outlook for incomes in 2010-11 is considerably bleaker, with the long-term effects of the recession on living standards delayed rather than avoided." | "However, this type of growth cannot be sustained in the long term, and the outlook for incomes in 2010-11 is considerably bleaker, with the long-term effects of the recession on living standards delayed rather than avoided." |
Lagging benefits | Lagging benefits |
The data, from the Department for Work and Pensions, showed median incomes rose 1% above the rate of inflation in 2009-10, after also having risen above inflation the previous fiscal year. | |
The IFS attributed a large part of this "surprising" result to the way in which benefits are calculated. | The IFS attributed a large part of this "surprising" result to the way in which benefits are calculated. |
Benefits are indexed to inflation with a lag of several months. | Benefits are indexed to inflation with a lag of several months. |
As inflation fell during the recession, it meant that benefits rose each year much faster than the then-current inflation rate. | As inflation fell during the recession, it meant that benefits rose each year much faster than the then-current inflation rate. |
But during the last fiscal year the effect was reversed - inflation took off rapidly, whereas benefits continued to be indexed to the earlier, lower inflation rate. | But during the last fiscal year the effect was reversed - inflation took off rapidly, whereas benefits continued to be indexed to the earlier, lower inflation rate. |
Other data showed that earnings undershot inflation by 3.8% during the first 11 months of the year. | Other data showed that earnings undershot inflation by 3.8% during the first 11 months of the year. |
The IFS said that if its forecast of a 3% fall in median incomes in 2010-11 was correct it would be the biggest such fall since 1981 and would bring the median income back down to its level of 2004-05. | The IFS said that if its forecast of a 3% fall in median incomes in 2010-11 was correct it would be the biggest such fall since 1981 and would bring the median income back down to its level of 2004-05. |
In March, a study by the IFS and the BBC said that median incomes in the UK had fallen by 1.6% a year between 2008 and 2011. | In March, a study by the IFS and the BBC said that median incomes in the UK had fallen by 1.6% a year between 2008 and 2011. |
Poverty rates | Poverty rates |
In the new report, the institute also looked at the Labour government's record on reducing poverty in the UK. | In the new report, the institute also looked at the Labour government's record on reducing poverty in the UK. |
Relative poverty rates for the elderly and children did fall during Labour's 13 years in government - thanks largely to benefits rising above the rate of inflation - and are now at their lowest levels since the 1980s. | Relative poverty rates for the elderly and children did fall during Labour's 13 years in government - thanks largely to benefits rising above the rate of inflation - and are now at their lowest levels since the 1980s. |
But among working-age adults without children, poverty has risen to new highs. | But among working-age adults without children, poverty has risen to new highs. |
It also found that overall income inequality had not improved, remaining near its highest level since records began in the 1960s. | It also found that overall income inequality had not improved, remaining near its highest level since records began in the 1960s. |