Real income falls for first time since early 1990s

21 March 2011 9:17 am | By Steve Tolley

Incomes have fallen in real terms over a three year period for the first time since the 1990s, according to a new report from the Institute for Fiscal Studies.

The report, Living Standards During the Recession, says that between 2008 and 2011 income has fallen by around 1.6 per cent when in a typical three year period it would have risen by around 5 per cent, giving a net effect of a 6.6 per cent fall.

IFS senior research economist and author of the report James Browne says the squeeze is likely to continue.

He says: “With real earnings growth slow and more tax increases and benefits cuts to come, household incomes are likely to remain stagnant for some time. They will probably still be below their 2008 level in 2013.”

The report says the fall represents the biggest three year fall since 1980 to 1983 and Browne adds that if real income does not get back above 2008 levels by 2013 it will represent the biggest five year drop since 1977.

The report says the fall in income is due to a combination of lower employment, lower interest on savings income, lower real earnings and tax and benefit changes.

It adds that changes to direct taxation will leave the “richest” households worse off, with those households facing an extra squeeze because of low returns on their savings which they rely on more than those at the lower end of the scale.

Pensioners have been hit harder than most, it says, putting the fall in their income at 2.6 per cent in the three year period, compared to 1.6 per cent for the population as a whole.

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