Drop in average incomes reported

Average household incomes have dropped for the first time since the recession in the early 1990s, a report by the Institute of Fiscal Studies (IFS).

The report found that household incomes after tax and benefits fell by 0.2% in real terms between 2002/03 and 2003/04, falling to £408 per week in 2003/04 prices. Almost two thirds of the population lived in households with incomes below the national average, the IFS also found.

The IFS partly attributed the fall in average income to the tax and national rises in the 2002 Budget. The report also said that the biggest above-inflation increases in council tax to date under the current government reduced average incomes by a further 0.3%.

However, the IFS found that the incomes of poorer households were boosted in 2003/04, largely due to the introduction of child tax credit and working tax credit, which the report described as "more generous" than the credits and benefits they replaced.

The report found that the new tax credits had helped to reduce income inequality for the third successive year. The IFS reported that the incomes of the poorest fifth of households rose by around 1% in 2003.04, while the income of the richest fifth of households fell by around 1%.

Commenting on the research, Andrew Shepard, one of the authors of the research said that this "redistributive package" had "nudged inequality lower although the government cannot yet claim that it is definitely on a downward trend”.

The report also found that child poverty had fallen by 100,000 to 3.5 million measured after housing costs (AHC) and was unchanged at 2.6 million before housing costs (BHC). The IFS said this was a smaller fall than had been anticipated and said it could have been caused by administrative problems with the new tax credits and an increase in the number of children living in families where no adult was working.

Pensioner poverty was also reported as continuing to fall "dramatically". However, the level of poverty across the population was found to only drop by a little between 2002/03 and 2003/04, due to a rise in poverty amongst working-age childless people, which was now at its highest levels since 1998/99. The IFS said that this was due to the government focusing financial help on pensioner households and families with children.

Another of the report's authors, Jonathan Shaw, commented: “The government will have been disappointed by the latest child poverty figures, which do not show the big drop that we and they were expecting. To meet the government’s short-term target, the number of children in poverty will now have to fall by 300,000 before housing costs and 500,000 after housing costs in 2004/05.

"The former still looks likely to be achieved, but the latter does not. Having said this, sampling error means that there is always considerable uncertainty around the data in any given year.”

(KMcA/SP)