This article is from the source 'bbc' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at http://www.bbc.co.uk/go/rss/int/news/-/news/business-13384857
The article has changed 5 times. There is an RSS feed of changes available.
Version 3 | Version 4 |
---|---|
Household incomes in UK 'may return to 2004 levels' | Household incomes in UK 'may return to 2004 levels' |
(about 6 hours 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. |
Average income could fall 3% this year, the steepest drop since 1981 and taking households back to 2004-5 levels. | Average income could fall 3% this year, the steepest drop since 1981 and taking households back to 2004-5 levels. |
The Institute for Fiscal Studies said average take-home incomes actually rose during recent recession due to low inflation and higher social benefits. | The Institute for Fiscal Studies said average take-home incomes actually rose during recent recession due to low inflation and higher social benefits. |
But IFS analysis suggests the long-term effects of the recession and higher inflation will squeeze incomes. | But IFS analysis suggests the long-term effects of the recession and higher inflation will squeeze incomes. |
Lower wage increases and the corrosive effect of rising inflation mean that it is "entirely possible" that income this financial year (2010-11) will return to levels of six years ago, the policy group said. | Lower wage increases and the corrosive effect of rising inflation mean that it is "entirely possible" that income this financial year (2010-11) will return to levels of six years ago, the policy group said. |
IFS research economist Wenchao Jin said: "The figures tell a story of pain delayed, but not pain avoided." | IFS research economist Wenchao Jin said: "The figures tell a story of pain delayed, but not pain avoided." |
The comments echo those of Bank of England governor Mervyn King who has repeatedly warned households that they face a significant cut in their spending power. | The comments echo those of Bank of England governor Mervyn King who has repeatedly warned households that they face a significant cut in their spending power. |
On Wednesday Mr King suggested households should be braced for another double-digit rise in energy bills, possibly pushing inflation to 5% by the end of the year. | On Wednesday Mr King suggested households should be braced for another double-digit rise in energy bills, possibly pushing inflation to 5% by the end of the year. |
The IFS analysed newly-released data for the financial year 2009-10, the last year of the Labour government. | The IFS analysed newly-released data for the financial year 2009-10, the last year of the Labour government. |
While the study shows average incomes rising faster than inflation in 2008-10, it says in the 2010-11 fiscal year they may have undershot. | While the study 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 administration said it would halve child poverty by 2010, but the IFS said that it would only have fallen by a quarter. | Tony Blair's administration said it would halve child poverty by 2010, but the IFS said that it would only have fallen by a quarter. |
Ms Jin said: "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 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. |