By Richard Johnstone
13 May 2011
Household incomes rose during the recession despite increases in unemployment, meaning the impact of the downturn on living standards has still to be felt, economists said today.
The Institute for Fiscal Studies was responding to figures published yesterday in the Department for Work & Pensions’ Households below average income report. The IFS says that there was a ‘surprising’ 1% real-terms increase in pay in 2009/10. This followed a rise in 2008/09, but both were likely to be wiped out as higher inflation eroded living standards.
The think-tank warns that the long-term impact of the recession on living standards is now being felt, with earnings having fallen by 3.8% in real-terms over the first 11 months of 2010/11.
Wenchao Jin, a research economist at the IFS, said: ‘The figures released today tell a story of pain delayed, but not pain avoided.
‘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, and the outlook for incomes in 2010/11 is considerably bleaker.’
The IFS study also reveals that in 2009/10, there were the lowest levels of child and pensioner poverty since the 1980s.
There was a second consecutive decrease in 2009/10 as the number of people living in poverty fell by 500,000.
Overall, during the 13 years of the Labour government, poverty fell from 19% of the population in 1996/97 to 17% in 2009/10, the think-tank found.
Child poverty fell by 200,000, based on incomes but not housing costs. But it would need to fall by a further 900,000 in 2010/11 to meet the Labour government’s target, set in 1999, of halving child poverty by 2010. The IFS expects this target to be missed ‘by a considerable distance’.
David Phillips, a senior research economist at the think-tank, said: ‘Research by IFS economists further suggests that child poverty will increase by around 300,000 by 2013/14, driven largely by cuts in the generosity of benefits and Tax Credits by the coalition government.’
‘For pensioners, relative poverty has been lower in only two or three years out of the past 50,’ he added.
