Incomes at the 10th percentile failed to increase in the five years to 2018/2019 as falls in benefit and tax credit income offset growth in employment incomes, says IFS

Even taking into account temporary benefit increases due to COVID-19, out-of-work households are 10 per cent poorer than they would have been without cuts applied since 2011

Incomes at the 10th percentile - higher than for 10 per cent of the population, lower than for the other 90 per cent - failed to increase in the five years from 2013/2014 to 2018/2019 as falls in benefit and tax credit income offset growth in employment incomes, according to the Institute for Fiscal Studies (IFS).

In new research published today, Living standards, poverty and inequality in the UK: 2020, the IFS observes that the coronavirus (COVID-19) pandemic hit after the weakest decade of growth in incomes since comparable records began, and that workers whose livelihoods look most at risk as a result of the crisis already tended to have relatively low incomes and were relatively likely to be in poverty prior to its onset.

Focusing on how changes in living standards differed for different groups over this period, the IFS highlights that - 

• income at the 10th percentile was essentially the same in 2018/2019 as it had been five years earlier in 2013/2014 - this was entirely due to falls in benefit and tax credit income, which offset growth in employment incomes;
• the failure to uprate most working-age benefits and tax credits in line with inflation over that period reduced their real value by 5 per cent; and
• even with the temporary benefit increases put in place in response to COVID-19, out-of-work households are on average entitled to about £1,600 per year (10 per cent) less than they would have been without cuts since 2011, mainly due to the ‘benefits freeze’ and the introduction of universal credit - without the temporary increase they would be 15 per cent worse off.

Research Economist at the IFS Pascale Bourquin said today - 

'The fate of household living standards over the coming years will hinge on how fast the economy can recover from the damage caused by COVID-19. The years following the Great Recession do not provide a good blueprint for a bounce-back: in the last decade, we have witnessed the slowest growth in household incomes since records began as earnings and productivity stalled and working-age benefits were cut sharply. We now have the dual challenge of trying to recover the ground people have lost in their careers and employment prospects, and addressing the problems we already had.'

For more information see COVID-19 hit as households were still paying price for long hangover from last crisis from ifs.org.uk