IFS report on a grim future shames the Tories' economic record
Well, the Chancellor who sold it is long gone, but his policies survive, and despite Theresa May’s boasts about a ‘strong economy’ and social justice, guess who’s set to foot the bill?
The Institute for Fiscal Studies (IFS) today projects average household income will not grow at all over the next two years, and will be around £5,000 lower in 2021-22 than ‘might reasonably been expected’ after the crash.
Meanwhile, absolute child poverty could return to pre-recession levels of 30 per cent – after falling by a third in the preceding (Labour government) decade.
What does the report say?
Back in 2007-8 there was long term average household income growth of two per cent. But the Office for Budgetary Responsibility (OBR) forecasts no growth at all over the next two years, and a mere four per cent growth in the five years to 2021-22.
As you can see on this graph, that leaves the average household 18 per cent, or £5,000, worse off:
If what he IFS calls the most sustained slowdown in income growth in sixty years is not bad enough, the pain won’t be shared equally. As the IFS says:
“Pensioner incomes will continue to grow faster than those of the rest of the population, while low-income households with children are likely to fare worst.”
In fact, More specifically:
- Pensioners will be better off than their children and grandchildren, with a median income projected to rise twice as quickly than for everyone else. By 2021–22, average pensioner income is likely to be 24 per cent higher than it was in 2007-08 – and eight per cent higher than for non-pensioners. In 2007-8 it was ten per cent lower.
- Poor people on welfare are set to suffer, with benefit cuts causing inequality to rise for the first time since the crash. The poorest 15 per cent will on average have lower incomes in five years time, while the four-year benefits freeze will slash the value of most working-age benefits by six per cent based on inflation forecasts. And with housing benefit curbs and universal credit, people on benefits will really feel the pinch.
- Poor families will be hit hardest, back to pre-recession levels, with absolute child poverty rising to 30 per cent by 2021-22. This is up from 27.5 per cent in 2014-15. As the IFS says:
‘This increase is entirely explained by the direct impact of tax and benefit reforms – particularly the cuts to working-age benefits – planned for this parliament. Meanwhile, absolute pensioner poverty is projected to fall from 13 per cent in 2014–15 to 11 per cent in 2021–22.
Tom Waters, Research Economist at IFS, said:
“If the OBR’s forecast for earnings growth is correct, average incomes will not increase at all over the next two years.
Even if earnings do much better than expected over the next few years, the long shadow cast by the financial crisis will not have receded.
Average incomes in 2021–22 are still projected to be £5,000 a year lower than we might have reasonably expected back in 2007–08.“
Why is this happening?
Andrew Hood, another author and an IFS Senior Research Economist, said:
“Weak earnings growth combined with planned benefit cuts means that the absolute poverty rate among children is projected to be roughly the same in 2021–22 as it was back in 2007–08.
In the decade before that, it fell by a third. Tax and benefit changes planned for this parliament explain all of the projected increase in absolute child poverty between 2014–15 and 2021–22.”
In other words, this comes down to policy. As Campbell Robb, chief executive of the Joseph Rowntree Foundation, said:
“One of the biggest drivers of the rise in child poverty is policy choices, which is why it is essential that the Prime Minister and Chancellor use the upcoming Budget to put in place measures to stop this happening.”
So after nearly seven years of Tories in power, society isn’t ‘big’ so much as it’s poor, long-term plans have borne rotten fruit, and Britain is more broken than ever.
Adam Barnett is staff writer for Left Foot Forward. Follow him on Twitter @AdamBarnett13Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.