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Household Incomes Falling By £1 A Day

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Household incomes are shrinking at £1 a day in real terms thanks to soaring inflation, stagnant wages and low interest rates, a study has found.

The average income of British households after inflation is factored in is 1.6% lower than in 2008, according to research by the Institute for Fiscal Studies.

It means a loss of £360 a year on average – the most severe three-year squeeze since the early Thatcher years in the 1980s.

The figures stand in stark contrast to the bigger picture for the last 50 years, in which incomes rose by 1.6% annually on average.

The poorest 10% of households have seen real incomes fall by 2.1% in the three years since 2008 - a drop of £182 every twelve months.

Richer households fared even worse. The top 5% of earners saw incomes droop 3.8%, which works out at £2,230 lost every year.

Families with children saw average income fall by 1.1%, or £233 a year. They would usually have expected income to rise by £1,060 a year.

The IFS compiled the data for the BBC ahead of the Budget this Wednesday, in which Chancellor George Osborne Chancellor is expected to stick to his £111bn deficit-busting plan.

Paul Johnson, the think-tanks' director, told Radio 4: 'Given what we know about the Government's plans for tax rises and benefit cuts, it certainly looks like it's going to be a couple of years before we start to see incomes rising.

'If that's the case, it looks like we will have a five-year period in which incomes have not risen, which will be the first time we have seen that for about 40 years.'

Tim Moore, an economist at Markit, says rising living costs are the major force behind the bleak numbers.

February inflation figures due tomorrow are tipped to show little change from January's 4% mark on the consumer prices index, which was double the Government's 2% target.

But while the price of goods has soared, wages haven't. Incomes were only 2.3% higher than a year ago in the three months to January and much of that was down to bumper bonuses paid to bankers.

Just 11% of workers said they had seen a pay rise this year, according the research by uSwitch.com.

And despite a record low Bank of England base rate at 0.5% representing a boon for mortgage borrowers who've seen monthly repayments cut, the return on savings accounts has crashed more painfully.

Savers now receive 0.84% a year on the average instant access savings account, according to Moneyfacts. Back in February 2007, just before the Bank of England cut base rate to 0.5%, the average was 4.1%.

Pensioner households have been particularly badly hit. They've seen real annual incomes fall 2.4% or £456 since 2008 as many no longer have mortgages and rely on savings income. In normal times, pensioner households would have been expected to rise by some £960.

Moore, of economics data specialists Markit, says: 'Despite pockets of growth in manufacturing and business services, weak economic conditions mean that incomes continue to fall behind inflation."

He added that job insecurity – particularly in the public sector - and worries about the government's programme of tax rises and spending cuts will heap further pressure on hard-hit Britons.

Markit's own study found that struggling families this month have less spare cash to spend than at any time since March 2009 thanks to the soaring cost of everyday goods.

A rare scrap of good news ahead of the Budget this week is that the IFS forecasts a rise in average incomes in the immediate future.

Tax and benefits changes are expected to increase real-terms income for the median British household by £120 a year.

Part of the reason is a more generous personal allowance. Individuals will not have to pay tax on the first £7,475 they earn between 6 April 2011 and 5 April 2012, increased from £6,475.

However, more will be thrown into the higher-rate 40% tax band when the qualifying income is cut from £43,876 to £42,476.

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It's the loss of income recovery.

The economy is currently experiencing a beyond-design-basis event.

Yet, elsewhere in the MSM it is projected that government borrowing will come in £8bn lower than expected at 'only' £140bn this year and that the recovery is well on track.

I cannot see the wood for the trees.

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  • 311 Brexit, House prices and Summer 2020

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