Poorest ‘hit hard by recession’

Pensioners and the poorest households are amongst those that have been the worst hit by the recession, according to a study by the Institute for Fiscal Studies (IFS) and the BBC.

The richest households – though better able to cope – were hit even harder.

Across the board, real incomes in the UK fell by 1.6% a year between 2008 and 2011, the study found.

By contrast, the median household income rose 1.6% per year during the previous 50 years.

Incomes have fallen because of loss of employment during the recession, lower interest earnings on savings and low wage inflation relative to price inflation, the study found.

The poor and the rich

The UK’s poorest, defined as the middle of the bottom 10% of households or the fifth percentile, saw their real income fall by 2.1% between 2008 and 2011, according to the IFS.

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The recovery has been more painful so far than the recession”

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 Stephanie Flanders Economics editor, BBC News

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  • That is a fall of £182 per year. In normal times they might have expected their annual income to rise by £428.

    Pensioner households saw their average income fall 2.4% OR £456 per year, against an expected rise of £858 per year during normal times.

    The UK’s richest, defined as the top 5% of households or the 95th percentile, saw their real income fall by 3.8% during the period.

    That is an annual fall of £2,230. In normal times they might have expected their real income to rise by £2,940 per year.

    The richest would be best place to cope with falls in their incomes, the study found.

     Households with children have seen their average income fall the least

    Families with children saw their real income fall 1.1%, or £233 per year. They might have usually seen their income rise by £1,060 per year.

    Families without children saw their real income fall 1.8%, or £500. They might have usually seen their income rise by £1,367 per year.

    The average working age household without children saw their real income fall 1.8%.

    Tax and benefits

    The richest and the poorest were the only ones who saw their real incomes reduced by tax and benefit changes during the 2008-2011 period.

    Average income changes 2008-2011

    • Richest income down 3.8%
    • Pensioner income down 2.4%
    • Poorest income down 2.1%
    • Households with children down 1.1%
    • Households without children down 1.8%
    • Median income down 1.6%

    Source: IFS

    Changes to the tax and benefit in the year ahead are expected to push real incomes higher, however.

    The median household income should rise by £120 as a result of tax and benefit changes, the IFS forecast.

    This “surprising” boost to incomes is a result of changes in personal allowances that have raised net income for many households, with direct tax rises “largely affecting only the very richest”, the IFS said.

    In addition, a lot of benefit changes that will hit families will not come in until 2012 or beyond.


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