Average household facing £5,000 yearly drop in living standards, report says
The average UK household is facing a £5,000-a-year overall hit to living standards by 2021/22 as a result of the slow recovery from the 2008 crash, with low-income families with children faring worst of all, a new report has warned.
The long-term impact of the 2008 economic crash and the "tepid" recovery means that median household incomes will be 18% lower in 2021/22 in real terms than they would have been if pre-crash trends had continued, the Institute for Fiscal Studies (IFS) found. The "historically weak" income growth is the equivalent of more than £5,000 for each family
And benefit cuts planned by the Government mean that the poorest 15% of the population will have lower incomes in five years' time than they do now, reversing the recent move towards reduced inequality, said the IFS.
Absolute child poverty is predicted to rise from 27.5% in 2014/15 to 30% in 2021/22, "entirely" as a result of the direct impact of tax and benefit reforms planned for this Parliament, found the economic think tank.
The sustained slowdown in income growth in the 14 years after 2007/08 is "unprecedented in at least the last 60 years", said the IFS, which based its projections on the forecasts for average earnings produced by the Government's own Office for Budget Responsibility (OBR).
The OBR forecast suggests that household incomes will not grow at all for the next two years and will rise by just 4% over the next five years, said the IFS. Even if real earnings grow by one percentage point more each year than the OBR expects, average incomes will still be 16% lower in 2021/22 than would have been reached if pre-crash trends had continued after 2008.
And the think tank warned: "Of course, things could instead turn out worse."
However, pensioners will continue to enjoy faster-rising living standards than the rest of the population, with average incomes due to be 24% higher in 2021/22 than 2007/08. After taking housing costs and household size into account, median income is projected to be almost 8% higher for pensioners than for non-pensioners by 2021/22, compared to 10% lower in 2007/08, said the IFS.
IFS research economist Tom Waters said the figures suggested that "the long shadow cast by the financial crisis" will not have receded by 2021/22.
Campbell Robb, chief executive of the independent Joseph Rowntree Foundation, said: "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."
And Liberal Democrat Treasury spokeswoman Baroness Kramer said: "With the upcoming Budget, the Government have a chance to change course. For all the talk about the 'just about managing' we have seen no real help for them. It is time for the Government to act."
A Treasury spokesman said: "We are taking action to support families with the costs of living by cutting taxes for millions of working people, doubling free childcare for nearly 400,000 working parents and introducing the National Living Wage - a significant pay rise for the lowest earners. More people are now in work than ever before with living standards also forecast to rise over this Parliament."
Labour Treasury spokesman Peter Dowd said: "Today's damning indictment on the outlook for living standards is yet more evidence of the Tory Government's economic failure."