It's going to get worse - Institute for Fiscal Studies

An Institute for Fiscal Studies analysis predicted that average incomes, adjusted for inflation, will fall by 3% this year and further in 2012. The director of the IFS, Paul Johnson, said in the period 2009-10 to 2012-13, real median household incomes will drop by a whopping 7.4%. Not since the Callaghan Labour government of the mid-70s have families come near to suffering a similar loss of income as the one now predicted to hit Britain over the next five years, the IFS said. The drop in living standards since the three-day week will see the average family income fall by nearly £2,500 in just three years.

Paul Johnson said: “Again we are running out of superlatives to describe just how extraordinary are some of these changes. Our own estimates suggest that real median household incomes will be no higher in 2015–16 than they were in 2002–03, more than a decade without any increase in living standards for those in the middle of the income distribution.”

Lower income groups, it confirmed, will bear the brunt of the government's latest cuts. IFS figures showed that the ConDem coalition had shifted the burden of paying for the deficit on to the most vulnerable. Shadow home secretary Yvette Cooper said the IFS report revealed the poorest 30% of households would lose more than three times as much as the richest 30%.

"The new tax and benefit measures are, on average, a takeaway from lower-income families with children, and a giveaway to those in the middle and top of income distribution," said IFS researcher Robert Joyce.

Alison Garnham, chief executive of the charity Child Poverty Action Group, said: "The IFS analysis confirms that the chancellor's new tax and benefit measures are a takeaway from low-income families with children to those at the middle and top. It is particularly perverse to reduce incomes of the lowest-paid working families by reducing tax credits when this is the group the government claims it wants to help through improved work incentives."

Official data this week showed UK families' weekly spending fell last year to the lowest in real terms for at least seven years. They cut back on spending on leisure to try to pay for housing, energy and transport costs. One of the big pressures facing households is high inflation, which has left most people worse off in real terms.

Pay growth for workers in Britain hit a record low between 2010 and 2011, according to official data last week. Pay was up just 0.4% on a year ago in terms of gross weekly earnings, meaning that incomes are tumbling in real terms, given that inflation stands at 5%.