HOUSEHOLD INCOMES in the United Kingdom rose during the recession despite significant increases in unemployment but the full impact of billions of pounds worth of spending cuts has still to be felt, an influential economic body warned yesterday.
The Institute of Fiscal Studies (IFS) said that despite “surprising” increases in incomes in both 2008-2009 and 2009-2010, the value of incomes has fallen by nearly four per cent in the last 12 months because of inflation.
“Average living standards rose over the recent recession, likely to be driven by large increases in benefits and tax credit rates. However, this type of growth cannot be sustained in the long term,” said IFS economist Wenchao Jin.
The IFS study showed the number of people living in poverty in the UK last year, including children and pensioners, had fallen by 500,000 to the lowest figure since the early 1980s.
During 13 years of Labour rule under prime ministers Tony Blair and Gordon Brown, the percentage of the UK population living in poverty fell from 19 in 1996-1997 to 17 in 2009-2010, though the ambition to halve child poverty will be missed “by a considerable distance”, the study said.
Child poverty fell from 27 per cent to 21 per cent of children between 1996-1997 and 2004-2005, and then barely at all in Labour’s third term.
Despite the improvement in poverty figures, the gap between rich and poor is now at its greatest, with the top 5 per cent now 28 per cent better off in real terms than when Labour took power in 1997, and the wealth of the top 1 per cent higher “by a phenomenal 56 per cent”, said the institute.
All incomes are likely to come under pressure in coming years, however. “We know with a rather depressing degree of certainty that average incomes are likely to have fallen in 2010-11 and are likely to fall further in 2011-12,” said the institute.
The UK’s economic recovery is still anaemic, according to the latest figures, which show Germany’s gross domestic product increased by 1.5 per cent in the first three months, while France expanded by 1 per cent.
In contrast, the UK’s economy increased by just 0.5 per cent in the same period, following a 0.5 per cent contraction in the last quarter of 2010. Inflation in the UK is expected to reach 5 per cent this year.
