Poorest bear brunt of falling household incomes

8 Mar 12
Poorer families and those with children will be hit hardest by imminent tax and benefit changes, the Institute for Fiscal Studies warned today.

By Vivienne Russell | 8 March 2012

Poorer families and those with children will be hit hardest by imminent tax and benefit changes, the Institute for Fiscal Studies has warned.

Ahead of the Budget on March 21, the think-tank has consolidated its research on likely changes to UK incomes. It said households would, on average, be £160 worse off in the next financial year, a total net income loss of £4.1bn. This is set to rise to £9.8bn or £370 per household in 2013/14 once the full effect of changes to fuel duty and Child Benefit are felt.

Households in the bottom half of the income distribution will feel the pinch more, the IFS said. This is because of various welfare cuts and the change of inflation measure for benefit upratings from the Retail Prices Index to the narrower Consumer Prices Index.

The dominant factor for those on medium incomes has been the failure of pay to keep pace with inflation. The IFS estimates that median household income has fallen by 6.4% in real terms over the past two years.

Robert Joyce, an IFS research economist, said: ‘As the chancellor weighs up possible new announcements for his Budget in a fortnight’s time, a key consideration will doubtless be the outlook for household incomes and how they are likely to be affected by the tax and benefit changes that have already been announced for the coming financial year.’

He added that, if macroeconomic forecasts are correct, household incomes are unlikely to fall much further and be slow to recover.

On child poverty, the IFS said there was ‘no realistic chance’ of the government meeting its targets. Ministers needed to either set a realistic plan to meet the targets or revise them to something that is both ‘desirable and achievable’.

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