21.03.11
Household income shrinking fast
The past three years have seen the biggest fall in household incomes since the recession of the early 1990s, new research shows.
The Institute for Fiscal Studies found that a household in the mid-range of income distributions would have found real-terms income had shrunk by £360 a year, or 1.6%, between 2008 and 2011.
Over the long term, household incomes tend to rise by about 1.6% a year after taking account of inflation, making the recent fall feel even harsher.
The report, by James Browne, says the decrease is due to lower employment, lower interest from savings, lower real earnings and changes to tax and benefit rules.
In his report, he writes: “On the other hand, changes to the direct tax and benefit system over this period will actually have benefited the median household. This reflects some giveaways in 2009 and 2010, as well as the increase in the personal allowance expected in April 2011.
“But this pattern varies by income. Tax increases will leave the richest households worse off. Higher income households are also more reliant on income from savings interest and earnings, and hence are more affected than those lower down the income distribution from the fall in interest rates. Someone in the middle of the richest tenth in society in 2011 will be about £2,200 less well-off (or 3.8%) than someone in that position in 2008.”
He added that pensioners have been hit particularly hard.
Browne said: “Household incomes will probably still be below their 2008 level in 2013. If so this will represent the biggest fall in incomes over a five year period since 1972-1977.”
The full report, funded by the BBC and the ESRC Centre for the Microeconomic analysis of Public Policy, is available at www.ifs.org.uk
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