Average household incomes have again reached the level they were at before the recession, according to research published today by the Institute for Fiscal Studies (IFS).
Despite this, changes in living standards have been different for different age groups. Working age people are still receiving incomes below the 2007-8 level, with the median income for 22-30-year-olds projected to be 7.6 percent less than it was before the financial crisis after allowing for inflation, and an estimated 2.9 percent lower for people aged between 31 and 59.
The median income for people over 60 is projected to have risen by 1.8 percent since 2007-8.
Andrew Hood, a research economist at IFS and author of the report said:
“After large falls, and a historically slow recovery, average household income is now back to around its pre-crisis level. However, the young have done much worse than the old, those on higher incomes somewhat worse than those on lower incomes, and those with children better than those without.”
Real household incomes continued to grow slowly during the recession of 2008 and 2009, in part due to temporary fiscal stimulus measures. Median income then fell by 4.0% from peak in 2009–10 to trough in 2011–12.
The report claims that it is almost certain that incomes would have fallen significantly no matter the government and that it would be misleading to attribute all the blame for lower standards of living before May 2010 to the Labour party and all those since to the coalition.
Robert Joyce, a Senior Research Economist at IFS and another author of the report, said:
“The key reason living standards have recovered so slowly has been weak earnings growth. In the long run, policies that boost productivity, and so increase real earnings, are likely to have a bigger impact on living standards than changes in tax and benefit rates.”
Further findings from the report include:
- Signs that rates of household income are improving: Falling inflation and an improved labour market have led to the IFS projecting that real median household income grew by 1.1 percent in the last 12 months, returning it to around its pre-crisis level.
- However, this recovery in living standards has been slow: The recovery that began in 2011–12 has been much slower than after the three previous recessions, with median income growing by less than 2 percent between 2011–12 and 2014–15.
- Household consumption is still below pre-recession levels: Consumption of food and fuels per person was 3.8 percent lower in the third quarter of 2014 than the beginning of 2008.
- Falls in income have been larger for higher-income households: Real earnings reportedly fell significantly following the recession, while security benefits tended to stay at the same level. Since 2012–13, middle-income households have done better than low- and high-income households, in line with the distributional impact of recent tax and benefit changes.
- Low income households have faced higher inflation: The rise in food and energy prices had a larger effect on lower income households, and they benefitted less from falling mortgage interest rates. When this is taken into account, changes in real incomes between 2007–08 and 2014–15 look similar across most of the distribution.