By Max Clarke
The median income for British households has dropped 1.6% a year since 2008, equivalent to some £360, according to an Institute for Fiscal Studies report published today.
This is both the first drop in household incomes since 1990, and the greatest drop since 1980-1983.
Commenting on the findings is the report's author, James Browne.
‘We are used to the real purchasing power of our incomes increasing over time. It seems likely that in the three years from 2008to 2011 real incomes will have fallen. With real earnings growth slow, and more tax increases and benefit cuts to come, household incomes are likely to remain stagnant for some time to come. Household incomes will probably still be below their 2008 level in 2013. If so this will represent the biggest fall in incomes over a five year period since 1972-1977’.
Low interest on savings, combined with earnings failing to keep pace with long term higher, inflation are chiefly responsible for the fall.
Unions were quick to blame the fall on the Government's spending review, with Trades Union Congress' General Secretary Brendan Barber saying:
"The picture looks set to get worse: the government's economic strategy is leading to lower growth, high unemployment and poorer public services, which will mean a continued squeeze on living standards.
Effects of the drop in disposable income, combined with rising fuel costs and instability in the Middle East, has harmed UK consumer confidence- already at its lowest reported level since 2004.
For the richest 10% of society, the fall has been 3.8%- or £2,200 but, warn the IFS, this will likely worsen after budget tax increases.
Pensioners have been hit particularly hard by the reduction in the interest rate they receive on their savings. They have also not benefited from a lot of the targeted direct tax and benefit changes introduced by the previous government.. As a result we expect median income among pensioners to have fallen by 2.4% or £460 a year between 2008—09 and 2011—12