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Newsview :Incomes 'back to pre-crisis level'
« on: March 05, 2015, 07:54:45 AM »

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Incomes 'back to pre-crisis level'

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Average household incomes are back to pre-crisis levels, but still more than 2% below their 2009-10 peak, according to research by the Institute for Fiscal Studies (IFS).


       

The think tank also found that incomes for working age people were still below their 2007-08 level, after adjusting for the impact of inflation.


       

Only over-60s will have higher incomes this year than 2007-08, it said.


       

Living standards have risen more slowly than in previous recessions, it found.


       

The IFS said this was mainly a result of weak growth in earnings for those in work, but it said tax increases and benefit cuts, as part of the government's actions to reduce the deficit, had also had a negative impact on average incomes.


       

"It's astonishing actually that seven years later incomes are still no higher than they were pre-recession and indeed for working-age households they're still a bit below where they were pre-recession," IFS director Paul Johnson told Radio 4.


 

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Analysis by Robert Peston, BBC Economics editor:
     

The IFS is careful not to pin most of the blame for stagnating living standards on either the coalition government or on the preceding Labour one.


       

It says that the prime culprit is the UK's hard-to-explain woeful productivity performance - lacklustre rises in the output of workers - which has meant that significant wage rises have been unaffordable.


       

What will be galling to both Labour and Tories is that the IFS also faces two ways on the contentious question of whether inequality of income has worsened since the Crash.


       

It says that if you assume that inflation is the same for all households, then income inequality is lower in 2014-15 then in 2007-08 - largely because of those steep rises in benefit payments in 2008 and 2009 that I mentioned earlier.


       

But in practice, it says, inflation between 2007 and 2010 was more pernicious for the poor than the rich, because of steep rises in food and energy prices which gobble up a disproportionately large portion of the incomes of the poorest.


       

So adjusting for this differential impact of inflation, income inequality barely changed in this period, the IFS argues.


       

Read Robert Peston in full here


 

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The IFS analysis is based on figures from both the Labour Force Survey,  the huge continuous survey that the Office for National Statistics uses to measure unemployment, and from the government's independent forecaster, the Office for Budget Responsibility.


       

It has then projected the data forward to be able to make more up-to-date forecasts.


       

Other findings of the analysis are that:


 
  • Median household income in 2014-15 is now back to the same level as it was in 2007-08, but is still more than 2% below its 2009-10 peak

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  • Median household income grew by just 1.8% between 2011-12 and 2014-15

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  • Median income for those aged between 22 to 30 is 7.6% lower in 2014-15 than in 2007-08, while for those aged 31 to 59 it is 2.5% lower, but for those over 60 it is 1.8% higher.

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The IFS said changes to spending patterns also suggested that people think their income prospects have been permanently affected by the recession, with consumption of non-durable goods, such as food and fuel, still significantly lower than at the same point in previous recessions.


       

"The key reason living standards have recovered so slowly has been weak earnings growth. In the long run, policies that boost productivity, and so increase real earnings, are likely to have a bigger impact on living standards than changes in tax and benefit rates," Robert Joyce, an IFS senior research economist, added.


       

Chancellor George Osborne told Radio 4 that the IFS' findings marked "a major milestone in our recovery".


       

"But it's not the end of the journey.  This has been a difficult recovery because we've had such a deep recession," he added.


       

But Cathy Jamieson, Labour's shadow financial secretary said the IFS' report "confirms that working people are worse off since 2010".


       

"We need a recovery that reaches kitchen tables across Britain, not one which has left working people worse off," she added.


 

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Has your average pay increased since the beginning of the economic crisis? You can email your story to [email protected].


 



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