In research funded by the Joseph Rowntree Foundation, the think-tank said strong employment growth had buoyed up the incomes of poorer households, but forthcoming benefit and tax credits cuts are set to take their toll.
Incomes in the tenth percentile grew by 4.1% between 2013/14 and 2015/16, compared growth of 4.9% at the median. Without any employment growth, the IFS estimates incomes would have increased by 2.5% for the tenth percentile and 3.3% at the median. Extremely low inflation has been an important factor, boosting the value of pay and benefits.
The IFS also forecasts that incomes are likely to grow, albeit slowly, for many households as earnings rise faster than inflation. At the median, household incomes are forecast to grow by just 1.5% between the current year and 2020/21.
However, for poorer households, the outlook is less favourable. Incomes in the tenth percentile are projected to remain constant in real terms, contrasted with annual growth of 2.3% for those in the ninetieth percentile.
Despite this, income inequality will be little changed over the 13 years from 2007/08, although an increase in child poverty is expected. Pension poverty will continue its long-run downward trend, the IFS predicts.
Report author James Browne said: “Following an historically slow recovery in living standards after the recession, stronger growth in household incomes at all income levels over the last two years will have been welcome news.
“For some, particularly the better off and pensions, this is likely to continue over the next five years as earnings and state pensions grow more quickly than inflation. But the prospects are not so good for others, including large families with low incomes, who will bear the brunt of planned benefit cuts.”
