Families are facing the biggest fall in income since 1970s
By Kirsty Walker and Becky Barrow
Last updated at 1:36 AM on 12th October 2011
Middle-income families are suffering an ‘unprecedented collapse’ in living standards as inflation and poor wages wipe thousands off incomes.
On the eve of the release of the worst unemployment figures for 17 years, the Institute for Fiscal Studies found families are about to endure their biggest income drop since the 1970s.
This means a typical couple with two children is likely to be £2,080 worse off in 2013 terms than they were last year as their real income falls from £30,056 to £27,976.
The IFS warned that the next two years will be ‘dominated by a large decline’ in incomes.
It revealed median incomes are set to fall by 7 per cent after inflation has been taken into account – the sharpest drop in 35 years.
The study said: ‘The unprecedented collapse in living standards is chiefly due to the high inflation and weak earnings growth over this period.’
Robert Joyce, of the IFS, described it as the ‘delayed effect’ of the recession.
He said: ‘Real earnings didn’t fall for a while after the economy started contracting, partly because inflation was very low.
‘But inflation has risen sharply and earnings have not done so in response.’
UK RECOVERY IS WEAKEST SINCE WWI
A leading think-tank today warned the economic recovery in the UK was the weakest of any since the end of the First World War.
The warning came as the National Institute of Economic and Social Research (NIESR) said its monthly estimates suggest gross domestic product (GDP) grew at 0.5 per cent in the three months to September, compared to a revised 0.4 per cent in the quarter to August.
NIESR said the level of GDP in the period is still 4 per cent below the pre-recession peak - suggesting the recovery is the weakest since 1918.
The figures for the third quarter may surprise some economists who have forecast near stagnant growth between July and September.
The grim report came as another respected think-tank warned UK recovery will be the weakest ‘since the end of the First World War’, as the economy remains mired in a ‘depression’.
The National Institute of Economic and Social Research estimated GDP rose by just 0.5 per cent in the three months to September. In its monthly report, NIESR said the figures were a slight improvement compared with growth of 0.4 per cent in the three months to August.
But it said the level of GDP is still 4 per cent below the pre-recession peak – suggesting the recovery is the weakest since 1918. It added: ‘UK economic growth over the past year has been anaemic.’
Economists had predicted stronger growth for the period to September as the weak second quarter was blamed on special factors, such as the Royal Wedding bank holiday.
The IFS also forecast that 600,000 more children will be pushed into poverty by 2013, taking the total living in ‘absolute’ poverty to 3.1million.
It says the Coalition’s tax and benefit reforms will drive down real incomes, and the new Universal Credit system will fail to make up for the losses of the poor.
And Shadow Treasury Minister Chris Leslie said: ‘The Tory-led Government’s policy of cutting spending and raising taxes too far and too fast has delivered slower growth and higher unemployment, which will mean billions more borrowing than planned.’
But Universities Minister David Willetts insisted: ‘We have tried to hold down fuel duty, we are freezing council tax, we have increased the income tax allowance, we have tried to do the things that help, but you can’t ignore the basic rules of economics, that when you inherit a situation where an economy has shrunk by 7 per cent there isn’t the money there.’
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