Britons suffer biggest income drop since 1981

Britons probably suffered the biggest drop in incomes in 30 years over the past 12 months, the Institute for Fiscal Studies said on Friday, leaving median incomes close to levels last seen in 2005. The estimates from the IFS, an independent think tank, echo the message from official statistics released in March, which showed household disposable income in 2010 suffered its biggest fall in real terms since 1977.
IFS economists said incomes were likely to have fallen 3 percent in the 2010/11 fiscal year, which ended in March, despite a surprise rise from 2008 to 2010. They also warned the long-term effects of the recession on living standards were yet to be felt, as wages failed to keep pace with inflation. "The figures released today tell a story of pain delayed, but not pain avoided," says Wenchao Jin, a research economist at the IFS. "The outlook for incomes in 2010-11 is considerably bleaker."
The rise in average living standards in the immediate aftermath of the global crisis was driven by large increases in benefits and tax credits, which have now been overtaken by inflation consumer price inflation rising towards 5 percent. Official income data for the last financial year will not be released for another 12 months, but the IFS said earnings - pay before tax credits, benefits and pensions - plunged by 3.8 percent in real terms over the first 11 months of 2010/11.
"The trends in earnings and benefits suggest that such a fall (of 3 percent) is entirely possible," the IFS report said. The report warned Conservative-Liberal Democrat coalition spending cuts designed to eliminate a budget deficit of 10 percent of GDP over four years risked pushing 300,000 children below the poverty line in the next three years. In 2009/10 200,000 fewer children were living in relative poverty - defined as households with incomes below 60 percent of the median - but the previous Labour government missed its ambitious target of halving child poverty between 1998 and 2010 by 900,000 youngsters.
"Research by IFS economists further suggests that child poverty will increase by around 300,000 by 2013-14, driven largely by cuts to the generosity of benefits and tax credits by the coalition government," said David Phillips, senior research economist at the IFS.