Household incomes are likely to rise in 2015, escaping the weakness of the past four years, though living standards are unlikely to reach their pre-crisis peak until 2016 at the earliest.
The forecast of household incomes from the Resolution Foundation, a think-tank specialising in living standards, highlights an issue certain to be central to the election campaign, which will intensify in the new year.
The Conservatives hope to focus minds on such predictions of better times ahead, while Labour will highlight the poor performance of incomes right across the scale since the coalition came to power.
Although the issue is central to May’s election contest, Britain has no accurate and timely measure of household living standards, with the most recent survey-based official figures relating to the 2012-13 financial year.
This absence of information has allowed the main parties to give wildly contrasting accounts of income trends, all based on other official data that is more timely.
Labour’s figures are taken from official wage figures adjusted for inflation by the discredited retail prices index measure of inflation, which was much higher than the consumer price index.
For their part, the Conservatives take no account of the rising number of households and use an inflation measure from the national accounts that was significantly lower than the CPI figure.
In an effort to iron out some of these problems, the Resolution Foundation took the real household disposable income figures and adjusted them for consumer price inflation and the rising population.
With these adjustments, real household disposable income per person in the third quarter of 2014 was 3.3 per cent lower than the pre-crisis peak, but was on an upward trend.
Using the Autumn Statement’s official forecasts from the Office for Budget Responsibility, household incomes are likely to grow 1.7 per cent in 2015, finally getting back to the rates of growth seen before the crisis.
But incomes would not reach their pre-crisis peak on this measure until early 2016, the Resolution Foundation said.
Matt Whittaker, its chief economist, said: “A key question is whether voters will compare their May 2015 incomes with their position in 2010 or with a more recent benchmark and prospective increases.”
It is highly uncertain that households will feel better off in time to give George Osborne, the chancellor, and the Conservatives the benefit of the doubt at the polling station, according to the data. Consumer confidence has been slipping from the highs it reached in the summer and in December was at its lowest level since March, according to market analysts GfK.
But within the disappointing totals, households report significantly more satisfaction with the change in their personal financial situation over the past 12 months — and their prospects — than they do with their confidence in the general economic situation.
The trends in aggregate living standards highlighted by the Resolution Foundation do not capture changes in the distribution of income, which can have a material effect on living standards for the rich and poor.
With wages beginning to rise faster than prices, and unemployment falling, it is likely that incomes above the lowest parts of the distribution scale are rising faster. However, the fall in inflation to 1 per cent in November reduces the squeeze the working-age poor will feel from Mr Osborne’s general restriction of most benefit increases to 1 per cent in 2014-15 and 2015-16.