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September 12, 2011 10:50 am
The government’s deficit reduction programme led to a fall in UK living standards of 3.5 per cent in 2010-11 and will result in one of the slowest periods for household income growth since the second world war in the decade to 2013-14, according to new research from the Institute for Fiscal Studies.
The report – part of a wider cross-country study into the impact of the “great recession” on household income by the London School of Economics – highlights the pain caused by Chancellor George Osborne’s programme of public sector cuts and tax rises. “As governments attempt to repair their public finances, household incomes now look set to be squeezed for a considerable length of time,” the report states.
The IFS said that median net household incomes grew slightly between 2007 and 2010, largely due to the support of the welfare state and the “unusually generous” increases in financial state support during the recession by the previous Labour government.
However, following the real terms fall in earnings, state benefits and tax credits in the most recent financial year, the resulting decrease in median net household income last year will be 3.5 per cent – the largest single-year drop since 1981, researchers said.
The continuing decline in average living standards into 2013-14 means that UK households will experience one of the weakest decades of growth in living standards since the second world war. “The great recession thus looks set to cast a very long shadow”, the IFS commented.
Robert Joyce, a research economist at the IFS, said the economic downturn, which began more than three years ago, and may now “seem like old news”.
“But, as in other developed countries, the most severe consequences of the recession on UK living standards have only just begun to be felt, and will continue to be felt for years to come,” he added.
The report was published just as George Osborne, speaking after a G7 finance ministers’ meeting in Marseilles, indicated that he was in favour of introducing further quantitative easing by the Bank of England to reinvigorate the economy.
However, Mr Osborne has consistently backed his austerity plan, dismissing calls for a “plan B” even as the Organisation for Economic Co-operation and Development, last week cut its UK growth forecast, predicting an output increase of just 0.1 per cent in the third and fourth quarters.
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