In 2012–13, which remains the last full year for which we have official data on household incomes, median net household income in the UK was 1.6% below its pre-recession (2007-08) level and 3.6% below its 2009–10 peak, after adjusting for RPIJ inflation. Due to this, and the fact that income growth had been sluggish even in the years prior to the recession, 2012–13 real median income was approximately the same as in 2005–06.
Projections by IFS researchers suggest that, in 2014-15, real median income is close to its 2007-08 level - though still about 2% below its 2009-10 peak, as real household incomes had continued to grow slowly during the recession, in part due to temporary fiscal stimulus measures such as the temporary cut to the main rate of VAT.
Figure 1. Real (RPIJ-adjusted) UK median income (2007-08 = 100) [get the data for this graph]
Note: Dotted lines indicate projections from IFS researchers. This first appeared in Cribb, Hood and Joyce (2015).
Different demographic groups have been affected differently. IFS research has highlighted how younger workers have seen larger reductions in employment and in pay than older workers, and how pensioner incomes have continued to grow in real terms since the crisis began. As a result the average incomes of working-age individuals remain below pre-crisis levels, and particularly so for the youngest adults. By income, the story is different too, though the differences are more subtle. Figure 2 shows that both low and high income households have seen income falls since the start of the recession, but these have tended to come at different points in time. As workers’ pay fell in real terms during and immediately after the recession, there were bigger falls in income for households further up the income distribution. After cuts to working-age benefits and net tax rises for those towards the very top began to take effect, there were bigger falls in income towards the bottom of the distribution and for a smaller group towards the top. The likely net result is that income falls look somewhat larger towards the top of the distribution since the crisis. However, the precise timing of the income falls has varied substantially across the distribution.
Figure 2. Change in real household income from 2007-08, by percentile point [get the data for this graph]
Note: Data for 2013-14 and 2014-15 are estimated using IFS simulations. This first appeared in Cribb, Hood and Joyce (2015).
However, this does assume that all households face the average inflation rate. Lower-income households have experienced higher rates of inflation than richer households since the recession, primarily due to price changes between 2007-08 and 2009-10; accounting for this wipes out most of the reduction in inequality that would otherwise have occurred. This is shown by figure 3.
Figure 3. Change in real household income from 2007-08 to 2014-15, by percentile point [get the data for this graph]
Note: Data for 2014-15 are estimated using IFS simulations. These data are taken from Cribb, Hood and Joyce (2015).
