According to an investigation by the Investigation for Fiscal Studies, household in the UK are set to see living standards fall by the largest amount since the ’70s. ‘Real income’ is what is left after the effects of inflation have been taken into account. Over the threee years leading up to the end of this one – these figures do not look good.
During the last 50 years ‘real incomes’ increased by an average of 1.6% every year – which works out as 5% over a three year period. This three year period has seen a drop in real incomes of a shocking 1.6%. This is the first time that there will have been a drop over a three year period since 1990.
So what does this mean for the so-called average household? According to the IFS it means over a thousand pounds over the three year period, at £360 a year.
The causes of the slump are believed to be varied. On one hand employment has been suffering. When there are higher levels of unemployment it is easier for businesses to either reduce wages or not increase them. The reluctance of consumers to switch bank accounts may be partly responsible, as income form interest on savings is also taken into account by the IFS calculations.
The Governor of the bank of England Mervyn King has been quoted by the Telegraph as saying that the VAT increase as well as other inflationary pressures meant that he was predicting that prices would exceed pay again this year. This was put into further grim context by the top banker by his pointing out that it would be the first time since the great depression of the ’20s that such a sharp fall in living standards would have been seen.
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