Households ‘suffered worse income hit in recent years than 1990s recession’

Households have been gripped by a tighter income squeeze in recent years than during the 1990s recession, according to a think-tank.

Typical household incomes are estimated to have fallen by 0.5% over the past two years – between 2016-17 and 2018-19 – the Resolution Foundation’s annual Living Standards Audit said.

This is weaker than the 0.3% growth seen between 1991 and 1993, when the economy was in and then recovering from recession, according to the report.

The Resolution Foundation, whose work aims to improve living standards for people on low to middle incomes, said the next Prime Minister “faces an urgent task of restoring decent rises in household incomes after an extended period of weakness which, for some low-income families, predated even the financial crisis”.

The Foundation argued that while households have managed to boost their incomes by working more and curtailing their leisure time, they may be “running out of road” when it comes to improving their situation in this way.

Its report also found that despite male employment income representing the largest single element of working age household income, men and women have contributed roughly equally to income growth over the past 25 years.

Women’s employment income has grown by £6,100 typically since 1995, while male employment income has grown by £7,100.

The Foundation said that just as the expansion of paid maternity leave and free childcare has supported family incomes over the past 25 years, a new set of policies will be needed, such as reforming Universal Credit to better support second earners in households to work.

Adam Corlett, senior economic analyst at the Resolution Foundation, said: “Over the past two years, UK households have experienced a near stagnation in living standards, even worse than the income hit experienced during the early 1990s recession.

“Restoring decent levels of household growth is therefore one of the most critical challenges facing the incoming prime minister.

“The living standards history of the past 25 years tells us that there are two broad ways that families have traditionally got richer over time – higher pay off the back of rising productivity, and supporting more women into work.

“After an unprecedented income squeeze over the past decade, and a living standards outlook that includes child poverty rising to record levels, an economic approach that supports higher incomes for all households must be the top domestic priority for the incoming PM.”

A Government spokesman said: “We are helping families to earn more and keep more of what they earn. People now have more money to spend than in 2010 and wages are outpacing inflation for the 16th month in a row.

“We have given the lowest paid an almost 5% pay rise by increasing the National Living Wage, cut income tax for 32 million people and taken 1.74 million people out of income tax.

“We are also helping with the cost of living by freezing fuel duty for the past nine years, introducing a price cap on standard energy tariffs and doubling free child care for working parents of three and four-year-olds.”