Growing income despite the recession – but tough times ahead

Coin stacks17 May 2011

A new report on income and inequality in the UK reveals that average take-home incomes continued to grow in 2009-10, despite the recession – but are set to go down in 2011-12 and beyond.

The report by the Institute for Fiscal Studies, funded by the Joseph Rowntree Foundation and co-funded by the ESRC Centre for the Microeconomic Analysis of Public Policy, charts the changes to average incomes, inequality and poverty since 1997 up to and including 2009-2010.

Findings show that incomes in Britain generally grew over the period 1996-97 to 2009-10, with an average growth in mean income of 1.9 per cent per year.

This growth was spread across most income groups, with a small increase in income inequality due to weaker growth among the lowest wage earners and stronger growth among the top earners.

The main driver for the recent income growth (2009-10) has been a strong growth in income from benefits and tax credits, which more than offset a real-terms fall in earnings.

But this increase in benefits and tax credits is "unlikely to be permanent", warns the report. Cuts to benefits and tax credits are likely to reduce household incomes and increase income inequality.

The number of children in poverty (measured in terms of household incomes below 60 per cent of the median) fell significantly over the last 13 years, from 26.7 per cent in 1996-97 to 19.7 per cent in 2009-10.

However, the 2020 target for the 'eradication' of child poverty is unlikely to be met by the proposed policies for welfare reform, childcare and education, according to the researchers. Projections indicate that child poverty will rise from 2.6 million in 2010-11 to 2.9 million by 2013-14.

Pensioner poverty is currently at its lowest level since 1984, while poverty amongst working-age adults without dependent children is at its highest since comparable measurements began in 1961.

A regional breakdown shows that overall poverty is highest in the West Midlands and lowest in the South East of England.

"Given the need to reduce the deficit, it is clearly going to be more difficult for the new government to reduce poverty, or even keep it steady", concludes the report.