Richest have seen biggest cash income squeeze but poorest have faced higher inflation

Recent debates about the squeeze on household incomes have suffered from a lack of up-to-date information. The latest data covering all incomes at a household level only goes up to 2011–12, but new modelling work published today by the IFS provides a good guide to where we are now. It shows that:

• Real median household income in 2013–14 is more than 6% lower than before the economic crisis hit in 2007–08;
• The fall in median income has probably come to a halt in 2013–14;
• Better-off households have seen bigger proportionate real falls in income than poorer households if – as is usually the case – one assumes that all households face the average inflation rate;
• But this equalising effect is largely undone by the fact that poorer households have in fact experienced significantly higher rates of inflation.

These are the headlines from work carried out by IFS researchers, which forms part of the forthcoming IFS Green Budget 2014 and is funded by the Nuffield Foundation with support from the ESRC through the Centre for the Microeconomic Analysis of Public Policy at IFS.