Average incomes return to pre-recession levels


Average household incomes have returned to pre-recession levels as the economic recovery takes hold, the Institute for Fiscal Studies has suggested.

The IFS analysis said that household incomes were “finally strengthening” after the slowest recovery following a recession in history.

The report showed that a family with two children is now earning on average £31,000 after tax, breaking the level seen in 2007-08.

The IFS also said that the gap between the richest and the poorest had fallen as wages had been squeezed.

George Osborne seized on the figures as evidence that the economic recovery is feeding through to millions of people. The Chancellor said: “This confirmation from the independent IFS that incomes are back to their pre-crisis levels is another major milestone in our recovery from Labour’s Great Recession, and another sign that our long-term economic plan is working.

“But we don’t want just to repair the damage done — we want hard-working families to have higher incomes and pay lower taxes on those incomes, with all the economic security that brings. With two months to go until a critical general election, all this progress would be lost if we changed course.”

The IFS said that the slow recovery had been a “remarkable feature” of the downturn. In 2007-08, just before the recession, a family with two children earned £30,700. The figure peaked in 2010-11 before the effects of the recession were felt and it fell significantly over the next two years. Last year it rose to £31,000.

The IFS said that the Coalition took office just as household incomes were starting their “inevitable” decline, adding that it was “almost certain” that the same would have happened under any government.

When compared with previous economic recoveries, the improvement in living standards has been slow. Between 2011-12 and 2014-15, incomes grew by 1.8 per cent, compared with 9.2 per cent after the early Eighties recession and 5.1 per cent in the Nineties.

Weak growth in wages has been one of the key reasons for the slow recovery, while tax increases and benefit cuts have also squeezed incomes.

Iain Duncan Smith, the Work and Pensions Secretary, said the Tories still had to demonstrate they were not driven by a desire to “punish” people on benefits. He said that for too long his party had addressed the poor with “finger wagging” and should offer them “hope and opportunity” instead.

The report also looked at how different groups have fared. Andrew Hood, an author of the report, said: “The young have done much worse than the old, those on higher incomes somewhat worse than those on lower incomes, and those with children better than those without.”

The IFS said that the slow recovery has been a “remarkable feature” of the recent downturn.

The weak growth in wages has been one of the key reasons for the slow recovery, while tax increases and benefit cuts have also squeezed incomes.

The Institute of Fiscal Studies highlighted evidence that households consider the downturn to have permanently affected their income prospects.

The report also looked at how different groups are faring as the recovery takes hold.

The IFS said that large falls in real earnings have had a bigger effect on wealthier households, while poorer households have been hit harder by the rising cost of living.

Lower income households tend to dedicate a higher share of their income towards food and energy costs than those who are more well off.

The pressure on homeowners has been eased by low-mortgage rates but poorer households have been less likely to benefit as they are less likely to own their property.

The report found that while the average income of people aged 60 and over is projected to be 1.8 per cent higher in 2014/15 than in 2007/08, the income of those aged between 22 and 30 years old is estimated to be nearly 8 per cent lower than in 2007/08.

While pensioners have been hit particularly badly by the rising cost of energy and food in recent years, they have been helped by measures such as the “triple locking” of the state pension, which guarantees that the pension is uprated by a certain amount, according to the findings.