Household income more than 2 per cent below 2009-10 levels, according to IFS

The recovery in living standards has been much slower than after the three previous recessions

Average household income is now back at pre-recession levels but is still more than 2 per cent below its 2009–10 peak, according to the Institute for Fiscal Studies (IFS).

According to the think tank’s latest briefing note published today, the recovery in living standards has been much slower than after the three previous recessions, with median income growing by less than 2 per cent between 2011–12 and 2014–15.

The news confirms Labour’s election message that voters are worse of today than they were when the coalition took office back in 2010.

Real household incomes continued to grow during the recession of 2008 and 2009, according to the report, due in part to temporary fiscal stimulus measures brought in by the previous Labour government. Median income then fell by 4.0 per cent from its peak in 2009-10.

However the IFS says it is “almost certain that incomes would have fallen significantly under any government”.

“It would therefore be misleading to attribute all trends in living standards before May 2010 to Labour, and all trends since then to the coalition,” it adds.

It also says that household income is finally strengthening thanks to an improving labour market and falling inflation, with real median income growing by 1.1 per cent in 2014-15 – and therefore returning to around its pre-recession (2007–08) level.

But it cautions that the recovery in living standards has been slow and household consumption is still at pre-crisis level. Between 2011–12 and 2014–15, median income grew by just 1.8 per cent compared to 9.2 per cent in the early 1980s and 5.1 per cent in the 1990s.

This, the IFS says, is mainly the result of weak growth in earnings for those in work. “Tax increases and benefit cuts, implemented as part of the government’s deficit reduction plan, have also reduced incomes,” it adds.

According to the briefing note, changes in living standards have been different for different groups:

* Falls in income have been larger for higher-income households because real earnings fell significantly after the recession, while initially social security benefits were broadly protected. However since 2012–13 middle-income households have done better than low- and high-income households.

* Low-income households have faced higher inflation due to changes in the period up to and including 2009–10. Low-income households were hit harder by rising food and energy prices, and benefited less from falling mortgage interest rates, the IFS says.

* Incomes for those of working age remain below pre-crisis levels, with median income for young adults projected to be 7.6 per cent lower in 2014–15 than in 2007–08. It is also estimated to be 2.5 per cent lower for those aged 31 to 59. Meanwhile, median income for those aged 60 and over is projected to have risen by 1.8 per cent over the same period.

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