Living Standards 'Will Not Recover By 2015'

Living standards are unlikely to have recovered to their pre-crash levels by the general election in 2015, a think tank has warned.

The Institute for Fiscal Studies (IFS) said that while the fall in household incomes has now probably come to a halt, living standards are "dramatically" down on where they were before the global financial crisis in 2008.

In its latest analysis, the IFS said families on low incomes could lose the most from the years of recession, with the prospect of fresh cuts to benefits and tax credits adding to the squeeze.

With average household incomes at their lowest level for almost a decade, the IFS said there was "little reason" to expect a strong recovery in the next few years.

Real earnings are not expected to return to their 2009/10 levels until 2018/19, according to the Office for Budget Responsibility.

The IFS report found poorer families, who spend a higher proportion of their income on food and fuel, had suffered more as a result of inflation.

Between 2008 and 2013, energy prices rose by 60% while food was up 30% - compared to a 20% increase in prices overall.

At the same time those on low incomes were less likely to have benefited from cuts in mortgage rates.

The report said: "Average living standards have fallen dramatically since the recession, as income growth has failed to keep pace with the rate of inflation.

"This fall in average incomes has largely been driven by declines in real earnings.

"Looking forward, however, the combination of recovering real earnings and further cuts to benefits and tax credits is likely to mean that nominal income growth will be lower towards the bottom of the distribution.

"Unless differences in inflation are reversed, this could mean that low-income households will see the largest falls in living standards over the period of recession and fiscal consolidation as a whole."

Labour Treasury spokeswoman Catherine McKinnell said: "These worrying figures show those on lower incomes have been hardest hit by price rises, particularly food and energy bills.

"And on current forecasts real earnings are not expected to get back to the level they were in the final year of the last Labour government until 2018/19."

Chancellor George Osborne said that while the report showed how much poorer the country was as a result of "Labour's great recession" it also indicated that the fall in household incomes had probably come to a halt.

He said: "Only by continuing to work through our long-term plan will we secure a better economic future for hard-working people."

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