Millions of families who are ‘just about managing’ are worse off today than they were almost 15 years ago despite record employment levels, according to a new report.
The average income for households in the bottom half for earnings was £14,900 in 2003 after adjusting for inflation and housing costs.
That compares with £14,800 in 2016/17 as Brexit and the Government’s austerity plan continued to squeeze household incomes, the Resolution Foundation’s Living Standards Audit has revealed.
In decline: Household disposable income has fallen for low to middle income families since 2003
Overall, household income for 2017/18 increased by just 0.9 per cent – the lowest rise for four years and less than half the average between 1994 and 2007 before the financial crisis.
It was worse still for the poorest third of working age households, who saw their incomes fall by up to £150 in the last year as inflation and government cuts to tax credits and benefits began to bite, said the report.
Inflation spiked above three per cent last year, mainly thanks to the pound’s record slump after the Brexit vote, while average wages remained weak by historic standards.
The report comes at a time when government has been warned that benefits cutbacks are pushing low-income families into poverty while universal credit has led to long delays and miscalculated payments.
The think tank said that median incomes began stagnating in the years before the financial crisis after exceptionally strong growth in the late 2000s.
It attributes the slowdown to rising housing costs, a fall in hours for low-skilled male workers, a slowdown in benefit increases and a larger share of incomes for the top one per cent of earners.
The number of low and middle income households has risen to eight million, just under half of which have children, said the Resolution.
The official poverty rate is defined as those families living on incomes of less than 60 per cent of the median after accounting for housing costs.
Child poverty is projected to have increased by three per cent in the last year, said the report, driven by benefits cuts, notably a three per cent fall in real terms in the value of tax credits and child benefit.
Last year’s rise in child poverty reflects a broader trend since 2011, said the Foundation, with government data showing that the proportion of children in poverty has grown by 11 per cent over this period.
This has been driven by a longer term increase in children living in poor working families, up from 30 to 39 per cent since 2003/04.
Poverty rise: The number of low to middle income families in poverty has increased since 2003
And the future looks bleak with more than 40 per cent of low to middle income families saying they were unable to save £10 per month and more than 35 per cent they were unable to afford a holiday for one week with their children, the report found.
The Foundation said that despite high employment rates, many of the jobs are lower paid and there is a lack of progression into higher paid jobs.
Added to that, companies are holding on to their capital to get them through the tough times rather than investing in new technology to boost productivity.
They also have to pay more into employees’ pensions and spend more on staff training such as the apprenticeship levy, the think tank said.
‘We appear to have a picture of generalised stagnation for many, with lower income households actually going backwards,’ the report said.
‘The apparent falling away of the bottom from the middle in 2017/18 represents a disturbing new development.
‘This pattern has clear implications for poverty – captured by the number of people living in households with incomes below 60 per cent of the median [the middle figure of a set of income figures ranked from high to low].
Budget squeeze: More than 40% of low to middle income families said they were unable to save £10 per month or more
‘There are good odds that 2017/18 delivered a notable increase [in poverty].
‘Relative child poverty may have risen to its highest rate in at least 15 years, despite high levels of employment.’
Resolution’s senior economic analyst Adam Corlett said: ‘Reducing child poverty has been a goal of politicians from all parties in recent decades.
‘But our analysis shows that child poverty is likely to have risen last year, and that rises since 2010 have been underestimated in official government data.
‘Our analysis shows how important cash benefits like tax credits have been for supporting just about managing families and tackling child poverty since the millennium.
‘It’s vital that government and other policy makers understand the positive impact that cash transfers have on low-income families, not least as they are in the middle of a huge multi-year programme of over £14billion worth of benefit cuts.
‘The risk is that, unless the lessons of the past are learned, the future could spell squeezed incomes and further increases in child poverty.’
The report concluded that improved economic growth, leading to higher incomes, was dependent on certainty about the future, global growth and investment in better and higher value skilled jobs.
Separately, government is due to end its five-year public sector pay cap with more than a million workers set to receive a salary increase, it has been reported.
Prime Minister Theresa May is reportedly set to announce pay rises of between one per cent and four per cent for public workers including teachers, armed forces personnel and doctors on the last day of the parliamentary term.
Pay rise: Prime Minister Theresa May is reportedly set to announce pay rises of between 1% and 4% for public workers
The Government’s pay restraint policy has seen a two-year freeze after the Conservative-led coalition came to power in 2010, followed by a one per cent annual limit from 2013.
Unions and the Labour party have repeated calls for the cap to be lifted, with leader Jeremy Corbyn urging the Government to ‘see sense’ on the issue last September.
Then, May confirmed a lifting of the one per cent cap would happen in the future, with Number 10 announcing police would get a one per cent hike in basic pay along with a one per cent ‘non-consolidated’ one-year lump sum.
The proposed pay increases will be funded from departmental savings, rather than the Treasury offering new funds, it has been reported.
It comes after members of the biggest civil service union backed strikes over pay but failed to meet a legal threshold on industrial action ballots.
The Public and Commercial Services union said yesterday 85 per cent of those voting supported strikes in protest at the Government’s policy on pay.
However the turnout was 41 per cent; below the 50 per cent threshold.