The incomes of the UK’s poorest households have risen strongly over the last two years, but will be hit hard by future benefit cuts, a think tank has warned today.
Poverty has plummeted, with 400,000 fewer children, 300,000 fewer working age adults, and 200,000 fewer pensioners in absolute poverty over the last 12 months than in the year to April 2014.
The level of income below which the poorest 10 per cent of households fall – the so-called 10th percentile – climbed 4.1 per cent over the last two years, the Institute for Fiscal Studies (IFS) said.
Strong employment growth has been the main factor behind higher incomes, especially toward the bottom of the income distribution, the IFS said. Ultra-low inflation has also been key, boosting the value of pay and benefits.
But rather than income inequality remaining stable as it has over the last two years, it is expected to worsen as benefit cuts bite.
The level of income at the 90th percentile is expected to rise by 2.3 per cent a year over the next several years while income at the 10th percentile is forecast to remain flat. Child poverty is expected to creep up while pensioner poverty is projected to continue its downward trend.
However, considering the period from 2007 to 2020 as a whole, the IFS said income inequality will be little changed.
The research also said that less than a third of the increase in relative poverty forecast over the coming years will be due to benefit changes.
“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,” said James Browne, one of the authors of the research.
“For some, particularly the better off and pensioners, 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.”