With the UK continuing to make slow progress in recovering from the financial crisis, household incomes will not grow at all for the next two years, according to a report published on Thursday.
The Institute for Fiscal Studies (IFS) said that the recession and “tepid” recovery have resulted in a sustained slowdown in income growth which is unprecedented in at least the last 60 years.
The report, funded by the Joseph Rowntree Foundation, predicts that in five years’ time, median household income will be just 4% higher than it is now.
Some households will see a bigger squeeze on their income than others, and inequality is set to rise. For instance, low-income households with children are likely to fare worst, while pensioner incomes will continue to grow faster than those of the rest of the population.
Focusing on incomes after housing costs, the report found that if planned benefit cuts go ahead the poorest 15% of the population are likely to have lower incomes in five years’ time, on average.
Absolute child poverty on the official measure is projected to rise from 27.5% in 2014-15 to its pre-recession level of around 30% in 2021-22, an increase which is said to be “entirely explained by the direct impact of tax and benefit reforms — particularly the cuts to working-age benefits — planned for this parliament”.
Tom Waters, an author of the report and a research economist at the IFS, commented:
“If the Office for Budget Responsibility (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.”
Campbell Robb, chief executive of the Joseph Rowntree Foundation, added:
“These troubling forecasts show millions of families across the country are teetering on a precipice, with 400,000 pensioners and over one million more children likely to fall into poverty and suffer the very real and awful consequences that brings if things do not change.
“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. An excellent start would be to ensure families can keep more of their earnings under the Universal Credit.”