Average incomes have fallen by near-record amounts in the aftermath of the global economic recession, according to a think-tank report. Inequality has fallen back to levels last seen in the mid-1990s but only because the ‘poverty line’ has also been falling.

The analysis by the Institute for Fiscal Studies is based on the latest statistics for households with below-average income.

Key points

• Median income before taxes and benefits fell by 1.1 per cent in real terms in 2008/09, 2.8 per cent in 2009/10, and 4.1 per cent in 2010/11 – leaving it 7.8 per cent below its pre-recession level.
• Falls in median income were largely explained by earnings failing to keep up with inflation and rising unemployment.
• Inequality fell across the distribution in 2010/11 as the incomes of the better-off fell more quickly than those of the worse-off. The Gini coefficient (a standard measure of income inequality) fell from 0.36 in 2009/10 to 0.34 in 2010/11 – its lowest level since 1996/97.
• Poverty among pensioners and those with children has fallen sharply in recent years.
• Absolute poverty among working-age adults without children was no lower in 2010/11 than in the 1970s (based on a poverty line of 60 per cent of 1996/97 median income, after housing costs and adjusted for inflation).

Source: Jonathan Cribb, Robert Joyce and David Phillip, Living Standards, Poverty and Inequality in the UK: 2012, Commentary C124, Institute for Fiscal Studies

Links: IFS Commentary | Press release.