By Daniel Hunter

Average take-home incomes fell in 2010—11 despite a modest recovery in the wider economy, as rising inflation and the delayed effects of the late 2000s recession acted to reduce living standards.

Median household income fell by 3.1%, after accounting for inflation. This large fall follows surprising growth in median income during the years of the recession itself (2008— 09 and 2009—10) when falling inflation and increases in benefits and tax credits supported household incomes in the face of rising unemployment.

This is one of the key findings from the annual Household Below Average Income (HBAI) report published by the Department for Work and Pensions. The data cover years up to and including 2010—11, the first full financial year following the late 2000s recession. Other key findings include:

- 2010—11 saw the largest one-year fall in median income since 1981, reversing five years of (slow) growth in middle incomes in a single year. This means that after accounting for inflation, median income in 2010—11 was no higher than in 2004—05.

- Incomes fell right across the income distribution. But incomes fell proportionally more for richer households than poorer ones, leading to a large fall in income inequality.

- Measures of relative poverty continued to fall in 2010—11. But unlike in previous years, this did not reflect rising absolute living standards among poorer households. Instead, it reflected the fact that their incomes fell by less than median income. Absolute measures of poverty increased for the population as a whole.

- The last government’s target to halve relative child poverty between 1998—99 and 2010—11 was missed by 0.6 million children. However, the number of children in relative income poverty did fall by around a third over that period with 2.3 million children in relative poverty in 2010—11 compared with 3.4 million in 1998—99.

“The fall in median income in 2010—11 of 3.1% was the largest one-year fall since 1981 and returned it to the level last seen in 2004—05,” says Jonathan Cribb, a Research Economist at the IFS.

“This was driven largely by a decline in real earnings as the impact of the late 2000s recession on incomes finally started to become clear. Inequality also fell as those on benefits had their incomes relatively better protected. Looking ahead, our forecasts suggest that median incomes will have fallen further in 2011—12 and median incomes will be no higher in 2015—16 than they were in 2002—03."

“Although the last government’s 2010—11 relative child poverty target was missed, large increases in benefits and tax credits for families with children mean child poverty has fallen substantially since 1998—99 and is at its lowest level since 1984.” says Robert Joyce, a Senior Research Economist at the IFS.

“The Government has re-stated its commitment to the 2020—21 income-based child poverty targets that it inherited. But it is still in the position of having targets looming in just eight years without policies which give it a realistic chance of meeting them.”

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