The median income fell 3.1 per cent to £419 a week after inflation and before housing costs, according to the Department of Work and Pensions.
The drop in 2010-11 compares with slow growth in the two previous years, when the economy was hampered by the global financial crisis.
High earners appeared to have suffered a starker five per cent drop in income, though the government claimed this is partly due to the introduction of the 50p tax rate in April 2010, which prompted some of the top 20 per cent of earners to shift income into the previous year.
This drop at the top means that relative child poverty has fallen to 18 per cent, or 2.3m children, as the figures are based on those who live on less than 60 per cent of the median income.
But the government fell short of its target to halve relative child poverty between 1999 and 2011 by around 600,000 children, it said in its annual Households Below Average Income report.
In London, the city’s crippling rental prices mean that almost 35 per cent of people in inner London lived on a relatively low income after housing costs in 2010-11.
Around 18 per cent of central Londoners live on less than 60 per cent of the median income before housing costs, roughly in line with the English average.
The Institute of Fiscal Studies said the real earnings are likely to fall further. “Looking ahead, our forecasts suggest that median incomes will have fallen further in 2011-12 and median incomes will be no higher in 2015-16 than they were in 2002-03,” said research economist Jonathan Cribb.
•Real wages may be falling, but contract rates in some parts of the City are soaring, according to recruiter Robert Walters. Accountants doing contract work enjoyed a 7.8 per cent hike in rates last year, compared to a rise of just 0.8 per cent for their salaried counterparts. Risk and quant contractors got a 13.8 per cent rate rise.