UK income growth will stagnate over the next two years – IFS report

The UK will likely witness near-zero real median income growth over the next two years, according to a report published on Thursday (2 March) by the Institute for Fiscal Studies (IFS).

This growth is expected to pick up after 2018–19. Overall, between 2016–17 and 2021–22, IFS projects real median income to rise by 3.8%. Household income grew at an average rate of 2% annually before the financial crisis of 2008.

Growth in income will also likely vary within the population. The report said low-income groups, especially those with children, will be affected more than the high-income groups, signaling a rise in income inequality.

Campbell Robb, CEO at the Joseph Rowntree Foundation, a British charity, said: "These troubling forecasts show millions of families across the country are teetering on a precipice, with 400,000 pensioners and over one million more children likely to fall into poverty and suffer the very real and awful consequences that brings if things do not change."

The London-based economic research institute said that these estimates were based on current tax and benefit policy plans and macroeconomic forecasts from the Office for Budget Responsibility (OBR).

"If average earnings grow 1 percentage point (ppt) per year faster or slower than the OBR expects, our projections for real median income growth between 2016–17 and 2021–22 are 6.8% and 1.0% respectively," the institute said.

The estimated growth, it said, was slowest by historical standards. In real value terms, the economic body said the average UK household will face a £5,000 ($6140)-a-year overall hit to living standards by 2021/22. This, it said, was amid the slow recovery from the 2008 financial crisis.

Pensioners are expected to be better off over the next few years compared to the working population. The median income of pensioners will grow 6.8% between 2016–17 and 2021–22, compared with just 3.3% for non-pensioners. Their median income will also be 7.7% higher than workers by 2021–22, after deducting housing costs.

"One of the biggest drivers of the rise in child poverty is policy choices, which is why it is essential that the Prime Minister and Chancellor use the upcoming Budget to put in place measures to stop this happening. An excellent start would be to ensure families can keep more of their earnings under the Universal Credit," Robb said.