Average household income down 1.6%

The average British household has seen its real-terms income fall by £365 in the worst three-year squeeze since the early 1980s, research suggested today.

The Institute for Fiscal Studies (IFS) found that the income of the median UK household had fallen 1.6% since 2008.

During the previous half-century, the average income rose by 1.6% each year.

The IFS study for the BBC also suggested that those among the poorest 10% saw real incomes fall by 2.1% between 2008 and 2011, a drop of £182 per year.

But the richest households fared even worse, with those in the top 5% of the income scale seeing a fall of 3.8% over the three years, equivalent to an annual decline of £2,230.

Families with children saw average income fall by 1.1%, or £233 a year. They would usually have expected income to rise by £1,060 a year.

People have been hit by earnings failing to keep pace with inflation and low interest rates.

Forthcoming tax and benefits changes are expected to increase real-terms incomes, with the median household being £120 better off, the IFS forecast.

But the think-tank's director, Paul Johnson, said it is likely to be 2013 until incomes start rising.

"Given what the Office for Budgetary Responsibility is currently forecasting about earnings, and given what we know about the Government's plans for tax rises and benefit cuts over the next couple of years, it certainly looks like it's going to be a couple of years before we start to see incomes rising," he told the BBC Radio 4 Today programme.

"If that's the case, it looks like we will have a five-year period in which incomes have not risen, which will be the first time we have seen that for about 40 years."

With the budget coming up and household incomes falling, are you in the 'squeezed middle' and looking for help? We're trying to find case studies to whom our personal finance expert can offer assistance this week. Email Kevin Rawlinson at k.rawlinson@independent.co.uk to find out more.