Next five years to see stagnant incomes and rising inequality - IFS

The five years after the General Election will see stagnant incomes and increasing inequality, a respected economic think tank has forecast.

The Institute for Fiscal Studies (IFS) projected a "spectacularly poor" period for incomes, with no real-terms growth over the next two years, and only "modest" improvements in the following three.

This will leave incomes in 2021/22 more than 15% below what would have been expected if historical growth rates had continued after the 2008 crash - the equivalent of £5,000 a year for the average household.

If the projections are borne out, it will be the furthest incomes have lagged behind trend for at least 60 years, said the IFS in a new report.

Any improvements in income will be felt most by the wealthy, with the top 20% of households projected to enjoy an overall boost of around 5%-7% over the next five years while the bottom 20% see their incomes fall, largely due to cuts in benefits, said the IFS. Low-income households with children will be "particularly affected".

The report predicted a rise in absolute child poverty, taking it back to rates last seen in the early 2000s.

But it said poverty rates overall will remain virtually unchanged, because the burden of benefit cuts will fall largely on those who are already beneath the poverty line.

It comes after a decade in which average incomes grew by only 5% above inflation, leaving them more than 10% below what might have been expected before the crash.

And the IFS found that younger generations had been hit hardest, with the average incomes of 22-to-30-year-olds only now recovering their 2007/08 levels, while pensioners have seen incomes grow by 15% over the same period.

IFS research economist Tom Waters said: "The defining feature of the past decade has been slow growth in incomes, not rising inequality in incomes.

"While average incomes have begun to recover over the past few years, official forecasts imply no income growth at all over the next two years - thanks to higher inflation and weak growth in earnings - and weak income growth beyond that.

"That would leave incomes at the end of this coming Parliament more than 15% below where we might have expected before the financial crisis hit - equivalent to over £5,000 per household per year on average."

The chief executive of the independent Joseph Rowntree Foundation, Campbell Robb, called for political parties to set out plans to help the poor in their election manifestos.

Mr Robb said: "These troubling figures show families on low incomes could suffer a painful five-year squeeze on their living standards.

"Stagnant incomes, a freeze on working-age benefits and rising costs means millions of families are struggling to make ends meet.

"Incomes for the poorest fifth of the population are likely to fall even lower over the next Parliament, whilst those among the rest of the population grow."