Household incomes have fallen for the first time since the recession of the early 1990s.
Average household incomes dropped by 0.2 per cent to £408 a week last year, official figures released yesterday showed - a drop that will prove embarrassing to the Government ahead of the election campaign.
The Institute for Fiscal Studies, an independent think-tank, said although the incomes of the poorest households have increased, "the better-off were hit by rises in income tax, national insurance and council tax".
The Conservatives seized on the 2003-04 statistics and said they showed Labour had "let down hard-working families".
David Willetts, the shadow Work and Pensions Secretary, said: "This is a devastating evaluation of what Labour have done to hard-working families ... they got poorer last year compared with the year before."
The Government plans to stress its help for working families during the election campaign. The Treasury said of the figures: "There are a number of explanations for the £1 or 0.2 per cent drop, but the most significant is the large drop in take-home incomes reported by self-employed individuals.
"If self-employed people had been excluded, then reported take-home incomes would actually have risen in 2003-04 by a further 1.8 per cent (or £7)," a spokesman said.
Labour will also fail to meet its target to cut child poverty in Britain, the Tories claimed. The figures released by the Department for Work and Pensions showed that 2.6 million children are still living in poverty.
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