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.