The Future Forecast - little improvement

Typical household incomes in the UK will not grow for the next two years due to the "long shadow" of the 2008 financial crisis, the Institute for Fiscal Studies predicts.

The recession and tepid recovery mean that from the start of the crisis to 2021, households will suffer the worst income squeeze for 60 years, it says. They will be £5,000 a year worse off than they might have expected.

The IFS report on living standards for the Joseph Rowntree Foundation suggests, based on official forecasts produced for the government by the Office for Budget Responsibility, that long-term income growth is a relatively slow 2% a year.

"If the OBR's forecast for earnings growth is correct, average incomes will not increase at all over the next two years," said Tom Waters, an author of the report. "Even if earnings do much better than expected over the next few years, the long shadow cast by the financial crisis will not have receded."

This was generally the result of small increases in wages, low productivity levels, tax and benefit policies and the state of the UK economy. The squeeze would be felt worst by low-income households with children, he said, owing primarily to the four-year freeze in working-age benefits.

Campbell Robb, chief executive of the Joseph Rowntree Foundation, said: "These troubling forecasts show millions of families across the country are teetering on a precipice, with 400,000 pensioners and over one million more children likely to fall into poverty."

The IFS projects that the number of children in relative poverty, defined as those in a family earning less than 60 per cent of median incomes after housing costs, will rise by 900,000 to 5.1 million by 2021-22.

That is almost 36 per cent of all children.

The think tank also projects that the number of children in absolute poverty, those earning less than 60 per cent of 2010-11 real median incomes, will rise by 600,000.

That is 30 per cent of the total.

Imran Hussain, director of policy for the Child Poverty Action Group, said: “There is no greater burning injustice than children being forced into poverty as a result of government policy. Decisions which have made real-terms cuts to basic benefits for children, the low paid and the disabled have led to us rationing our decency as a country. At the same time, the better off have been the overwhelmingly beneficiaries of increases to personal tax allowances worth billions.