Real effect of the recession is yet to hit take-home pay

Elizabeth Fournier
LIVING standards in the UK are yet to feel the full brunt of the recession, with the biggest hit to take-home income likely to come over the next year as gains are eroded by higher inflation.

New figures from the Institute for Fiscal Studies (IFS) show that average take-home pay actually went up in both 2008-9 and 2009-10, even taking into account inflation and an increase in unemployment.

Median salaries are shown to have risen during the recession, climbing one per cent in 2009-10 to continue the pattern of slow growth seen before 2008, said the IFS.

But the increase is likely to be reversed soon, as inflation rises and the temporary effect of uprating benefits and tax credits wears off, the IFS warns.

Rates on most benefits and tax credits rose above inflation during the recession, when retail price index figures were just 0.5 per cent.

But according to the IFS, real-term incomes have fallen 3.8 per cent in the first eleven months of 2010-11, and average forecasts indicate that a drop of three per cent in take-home pay could be felt by the end of the year. This would constitute the largest drop in median incomes since 1981, leaving pay levels close to their 2004-5 rates.

The latest research also shows that levels of poverty in the UK have fallen for the second year running – dropping by 500,000 to 10.4m in 2009-10 – with poverty among children and pensioners at the lowest level since the 1980s.