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Home Publications No growth in household incomes last year – for only the fourth time in the last 30 years

No growth in household incomes last year – for only the fourth time in the last 30 years

Briefing note

The latest official statistics on household incomes, covering the year 2017–18, have been published today by the Department for Work and Pensions

After five years of recovery from post recession declines, real income growth ground to a complete halt in 2017–18. This is likely to have resulted from the effects of higher inflation which followed the 2016 sterling depreciation, and also reflects the freezing of most working age benefits.

The key findings from the newly released data are:

Median (middle) income stalled completely in 2017–18: there was 0% growth after adjusting for inflation. This means that 2017–18 was only the fourth year in the last 30 years where median income did not grow in real terms;

This means that 2017–18 was only the fourth year in the last 30 years where median income did not grow in real terms.

This reflects higher inflation which averaged 2.7% over the year while employee earnings rose just 2.4% - a real fall of 0.3%. At the same time the value of most working age benefits fell in real terms (because they were frozen in cash terms). Countering these negative trends employment levels again grew substantially, with the employment rate rising from 74.6% to 75.2%;

Overall income inequality was stable in 2017–18 because there was essentially zero income growth across most of the income distribution. Although overall inequality did not change in the official statistics, there is other evidence that very high earners have recently seen somewhat faster pay growth: The OBR’s most recent report finds that that in April-September 2018, annual cash-terms pay growth was 5.9% for the top 0.1% of earners, compared to 3.7% on average;

There was no improvement in the living standards of poor households. Absolute income poverty – defined as having income below 60% of the 2010–11 median - was unchanged with 19% population being poor on this definition in 2017–18, after accounting for housing costs. As growth in average living standards has stalled, so has the progress in reducing absolute poverty: it had fallen from 22% in 2013–14 to 19% in 2016–17, before stalling in 2017–18. Relative income poverty was also unchanged in 2017–18.

Responding to the new figures, Pascale Bourquin, an author of the briefing note and a Research Economist at IFS said,

“Average household income growth stalled in 2017–18 as inflation rose, eroding the real value of employees’ earnings and – in particular – working age benefits, which were frozen in cash terms. This was the first year of zero income growth since 2012–13, and leaves average incomes only 6% above their pre-recession levels. No income growth also meant that recent progress in reducing absolute poverty did not continue in 2017–18, with absolute poverty stuck at 19% once housing costs are accounted for.”

Deaton inequality website

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