IFS Analysis Shows “Lost Decade” For UK Household Income

Author: Market News International | Category: News

LONDON (MNI) – In the wake of the Office for Budget
Responsibility’s latest forecasts, analysis by the UK’s leading fiscal
body shows households facing a “lost decade” with no rise in real
incomes.

The Institute for Fiscal Studies says if the OBR projections,
published Tuesday, prove correct per-capita real household disposable
income (RHDI) will still be lower in 2016, the end of the OBR’s forecast
period, then it was in 2006.

The IFS analysis shows a 4.7% fall in RHDI between 2009 and 2012,
by far and way the largest three-year fall on record, dwarfing the
previous largest fall of just 1.9% between 1974 and 1977. The IFS points
out that a decade of no growth in RHDI is unprecedented – the worst
previous decade on their records was 1973 to 1983 when it grew by 14.4%.

The OBR uses a number of elements in the OBR’s forecasts, the
forecasts that underpinned Chancellor of the Exchequer George Osborne’s
Autumn Statement, to assess the likely path of household income.

Its analysis shows real median household income falls even faster
than per capital RHDI, dropping by 7.4% between 2009 and 2013, just
below the record 7.5% drop in 1974 to 1977. This highlights the squeeze
on middle income households, with the median lower in 2015-16 than in
2002 to 2003.

“We are looking at the worst period for average living standards
since records began,” IFS analyst Robert Joyce said.

The IFS analysis also highlights the fact that the Government has
very little margin for error in meeting its fiscal mandate and
supplementary fiscal target, and further spending cuts could be
required.

The public finances only meets the two fiscal targets because of
unspecified, spending cuts in the final two years of the forecast
period.

The government’s supplementary target states that public sector net
debt should be falling as a percentage on national income in 2015-16,
while the mandate is to eliminate the structural deficit on a five year
rolling basis.

On the OBR’s central forecast public sector net debt falls just
0.3% between 2014-15 and 2015-16 and “tiny adjustments to growth or the
public finances could lead to this target being missed,” Paul Johnson,
the IFS head, said.

The IFS also expressed skepticism about the Treasury’s raft of
initiatives to boost growth, including credit easing to boost lending to
small- to medium-sized enterprises and extra infrastructure spending.

The IFS notes the Autumn Statement was fiscally neutral for this
parliament and had extra spending cuts marked down for the start of the
next parliaments.

“It is hard for governments to use fiscal policy to boost growth in
the short run if they rule out an overall fiscal stimulus,” Johnson
said.

–London newsroom: +44 20 7862 7491 email:
drobinson@marketnews.com

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