Incomes suffer as recession bites
Average incomes collapsed last year as the effects of the recession began to bite, analysis by a leading think tank has revealed.
The Institute for Fiscal Studies (IFS) said Government figures showed average incomes before tax and benefits fell by more than 7% between 2007/8 and 2010/11, with the biggest fall in the most recent year.
Even taking account of tax changes and benefit increases, the median household income fell by 3.1% last year from £432 per week to £419, the largest single year fall since 1981.
Mean income fell by 5.7%, from £542 to £511 - the largest single fall recorded since 1962.
Before tax and benefits, median private income fell by 1.1% in 2008/9, 2.8% in 2009/10 and 4.1% in 2010/11.
While the falls in the first two years reflect rising unemployment, the 2010/11 figure is largely due to wages failing to keep pace with inflation.
"The primary reason for the falls in average income in 2010-11 was the fall in earnings," the report said.
Research economist Jonathan Cribb said: "Average private incomes fell by over 7% during the three years to 2010/11, and although net incomes fell in 2010/11 as well, they were cushioned by the tax and benefit system during the recession itself.
"Unless the economy performs much better than expected in the next few years, it looks likely that households' private incomes will still be below their peak for some years."
IFS director Paul Johnson said the drop in wages could mean living standards will not reach the same levels as 2002 until 2015: "The remarkable thing about what's happening to income levels at the moment is real earnings will probably fall again. By 2015 our expectation is that average household incomes will be no higher than they were in 2002. A decade-and-a-half of no growth in living standards, certainly unprecedented since the last war."
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