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The Actuary The magazine of the Institute & Faculty of Actuaries

UK income growth slowest for 60 years

With an average annual GDP growth rate of around 2%, UK median household income is forecast to be £5,000 lower per year by 2021-22 than expected, according to a report from the Institute for Fiscal Studies (IFS) released today.

"Average incomes will not increase at all over the next two years" ©iStock
"Average incomes will not increase at all over the next two years" ©iStock

The think- tank predicts that real pay will not grow at all for the next two years, and will be just 4% higher in five years’ time – the slowest that income growth has been for at least 60 years.

This is based on the Office for Budget Responsibility’s (OBR) forecasts for average earnings, and is thought to be due to a tepid economic recovery following the financial crisis in 2007-08.

IFS research economist, Tom Waters, said: “If the OBR’s forecast for earnings growth is correct, average incomes will not increase at all over the next two years.

“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.

“Average incomes in 2021–22 are still projected to be £5,000 a year lower than we might have reasonably expected back in 2007–08.”

The findings are based on the government’s household income data, combined with OBR macroeconomic forecasts, and announced changes to tax and benefit policy.

If planned benefit cuts go ahead, and OBR forecasts are correct, inequality will start to rise, and the poorest 15% of the population are likely to have lower incomes on average in five years’ time.

In addition, absolute child poverty is projected to rise from 27.5% in 2014-15, to around 30% in 2021-22 – returning to its pre-recession level – while hundreds of thousands of pensioners are also expected to be worse off.

Joseph Rowntree Foundation chief executive, Campbell Robb, said: “These troubling forecasts show millions of families across the country are teetering on a precipice, with 400,000 pensioners and over one a million more children likely to fall into poverty, and suffer the very real and awful consequences that this brings, if things do not change.

“One of the biggest drivers of the rise in child poverty is policy choices, which is why it is essential that the prime minister and chancellor use the upcoming budget to put in place measures to stop this happening.

“An excellent start would be to ensure families can keep more of their earnings under the Universal Credit.”

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