Household income has returned to pre-recession levels

Posted by Ben Tumilty in Credit Crunch on 6 March 2015 - Ben is a Credit Analyst at checkmyfile

Household incomes are “finally strengthening” according to the Institute for Fiscal Studies (IFS), in spite of the slowest recovery post-recession in recorded history.

The report from the IFS confirms that the “average” family, a couple with two children, now earns £31,000 after tax – more than the £30,700 seen in 2007-2008 before the recession. But the recent upturn is still drastically slower than the two previous recessions – the 1.8% growth in income between the pre and post-recession figures pales in comparison to the 5.1% increase seen resulting from the recession in the 1990s. it is also more than 9% (9.2%) seen in the early 1980s following the recession at that time.

Paul Johnson from the IFS expands on these findings. He says, “The thing that’s really different this time to what happened in the 1980s and 1990s recessions is they (incomes) have taken an awfully long time to recover. It is astonishing that seven years later incomes are still no higher than they were pre-recession and, indeed, in working-age households they are still a bit below where they were pre-recession”.

One of the more concerning figures to have been released is that the average income for those aged between 22 and 30 is estimated to be 7.6% lower than before the recession in 2007. This is a major worry for young adults, as it leaves their ability to follow in their parents’ footsteps by buying a house and starting a family delicately poised. For many of this age, the rise in house prices – both rental and outright purchasing – combined with the fall in income established by the report would suggest that the younger workers are the biggest losers in the post-recession economic fallout.

The IFS’s Andrew Hood quantifies this some more, saying, “The young have done much worse than the old, those on higher incomes somewhat worse than those on lower incomes, and those with children better than those without”.

The report mentions that due to the decrease in real earnings the fall in income hit the higher-earning households more than those on a lower household income. On the other hand, the poorer households have struggled more with the cost of living – due to spending a higher proportion of income on necessities such as food and energy bills.

It goes without saying that an increase in household income does not mean that the average family has more to spend – as a result, it is of vital importance to keep an eye on your income and expenditure, to ensure that everything tallies up as expected – if the Bank of England base rate rises as expected then margins will become tighter, and we will all need to do our best to ensure that we stay in control of our finances.

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