Next five years to see stagnant incomes - IFS

The top 20% can expect a 5-7% rise while the bottom 20% fall
The top 20% can expect a 5-7% rise while the bottom 20% fall

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.