Warning of seven-year squeeze

 

Average household incomes are set to drop by a massive 7.4% in real terms between 2009/10 and 2012/13, a respected economic thinktank said today.

Following yesterday's autumn statement by Chancellor George Osborne, the Institute for Fiscal Studies said that the median average income was now expected to be no higher in real terms in 2015/16 than it was in 2002/03.

After Mr Osborne yesterday extended his austerity programme beyond the next election, the IFS said public spending is now expected to drop by 16.2% in real terms over a seven-year squeeze lasting until 2017.

"We are running out of superlatives to describe just how extraordinary are some of these changes," the thinktank's director, Paul Johnson, told a press conference in London.

Mr Johnson said the two-year 1% pay cap for public sector workers announced by the Chancellor would effectively wipe out the average "pay premium" enjoyed by male staff over their private counterparts.

But he added that the Government's public sector pension squeeze, which has led to strikes across the UK today, would still leave workers with "substantially more generous" provision on average than in the private sector.

The IFS said that per capita real household disposable income was set to be lower in 2016 than 2006.

By comparison, the worst previous decade on record saw growth of 14%.

Mr Osborne defended his strategy as he visited Brussels for talks on the eurozone sovereign debt crisis with his EU counterparts today, insisting that cuts announced yesterday were designed to allow the Government to protect frontline services.

"We made a choice in this spending review to reduce some welfare entitlements, to cap housing benefits, in order to try and protect the NHS budget and to protect the schools budget," the Chancellor told the BBC.

"There are choices you can make and we have made ours. I think if you look at the record of this Government, we haven't shied away from real decisions."

Mr Osborne said the Government's decision to cut spending and raise taxes had helped Britain avoid the problems seen in heavily-indebted eurozone countries such as Italy, which saw bond yields surge to almost 8% yesterday.

But he warned that a collapse in the single currency area could spill over and cause recession in the UK.

"If the eurozone goes into recession, into a deep recession, then I'm afraid Britain will find it difficult to avoid a recession itself," he said.

"In a way, what's happening in the eurozone is a reminder to Britain that if you don't face up to your problems you have very much worse problems. Britain has taken decisive action, we now need the eurozone to do the same."

Grim figures in yesterday's economic and fiscal outlook from the Office for Budget Responsibility showed the Government is on track to borrow £111 billion more by 2016 than had been expected as recently as March. Unemployment is due to peak at 8.7% next year and GDP growth was downgraded for each of the four years to come.

Mr Osborne responded by announcing a 1% cap on public sector pay rises for each of the next two years, holding down tax credits and bringing forward the planned increase in the state pension age to 67 by eight years to 2026.

At Prime Minister's Questions in the House of Commons, Labour leader Ed Miliband said that yesterday's statement was proof that the Government's economic strategy had failed.

The £111 billion increase in borrowing came on top of more than £40 billion which Mr Osborne had already been forced to add to predictions he made last year, when he promised that the deficit would be eliminated before the 2015 election, said Mr Miliband.

He told David Cameron: "You are borrowing an extra £158 billion to pay for your economic failure.

"The truth is, your plan has failed. You refuse to change course and you are making working families pay the price.

"At the very least, we now know you will never, ever be able to say again 'We are all in this together'."

Mr Miliband said Mr Osborne's "miserable deal" had sliced £1 billion from tax credits, costing a family on the minimum wage a week-and-a-half's pay each year.

OBR figures showed child poverty would increase and unemployment hit 2.8 million as a result of the Government's decisions, he said.

"You are another Conservative Prime Minister for whom unemployment is a price worth paying," said Mr Miliband.

But Mr Cameron insisted that his Government had a "record to be proud of" on poverty, after raising more than a million low-paid workers out of income tax altogether.

He told the Commons that the coalition would "take the country through this storm", while Labour's policies would destroy market credibility and lead to rising interest rates.

"We are being tested by these difficult economic times," Mr Cameron told MPs.

"We will meet that test by getting on top of our debt, getting on top of our deficit."

OBR figures showed that by the end of the Parliament there will be half a million more people in jobs and 90,000 fewer people on the claimant count than when the coalition Government was elected, he said.

PA

Arts & Entertainment
Madonna in her music video for 'Like A Virgin'
music... and other misheard song lyrics
News
Waitrose will be bringing in more manned tills
newsOverheard in Waitrose: documenting the chatter in 'Britain's poshest supermarket'
News
The energy drink MosKa was banned for containing a heavy dose of the popular erectile dysfunction Levitra
news
News
Much of the colleges’ land is off-limits to locals in Cambridge, with tight security
educationAnd has the Cambridge I knew turned its back on me?
VIDEO
Have you tried new the Independent Digital Edition iPad app?
Sport
Australia's Dylan Tombides competes for the ball with Adal Matar of Kuwait during the AFC U-22 Championship Group C match in January
sportDylan Tombides was diagnosed with testicular cancer in 2011
News
Ida Beate Loken has been living at the foot of a mountain since May
newsNorwegian gives up home comforts for a cave
Extras
indybest10 best gardening gloves
News
Russia's President Vladimir Putin gives his annual televised question-and-answer session
peopleBizarre TV claim
Arts & Entertainment
tvIt might all be getting a bit much, but this is still the some of the finest TV ever made, says Grace Dent
Arts & Entertainment
Comedian Lenny Henry is calling for more regulation to support ethnic actors on TV
tvActor and comedian leads campaign against 'lack of diversity' in British television
News
Posted at the end of March, this tweeted photo was a week off the end of their Broadway shows
people
News
peopleStar to remain in hospital for up to 27 days to get over allergic reaction
Arts & Entertainment
The Honesty Policy is a group of anonymous Muslims who believe that the community needs a space to express itself without shame or judgement
music
News
Who makes you happy?
happy listSend your nominations now for the Independent on Sunday Happy List
Life & Style
life
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Apprentice IT Technician

£150.00 per week: QA Apprenticeships: This company is a company that specializ...

1st Line Technical Service Desk Analyst IT Apprentice

£153.75 per week: QA Apprenticeships: This company is an innovative outsourcin...

1st Line Helpdesk Engineer Apprentice

£150.00 per week: QA Apprenticeships: This company has been providing on site ...

Sales Associate Apprentice

£150.00 per week: QA Apprenticeships: We've been supplying best of breed peopl...

Day In a Page

How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Jury still out on Manchester City boss Manuel Pellegrini

Jury still out on Pellegrini

Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
Ben Stokes: 'Punching lockers isn't way forward'

Ben Stokes: 'Punching lockers isn't way forward'

The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
Mark Johnston: First £1 million jackpot spurs him on

Mark Johnston: First £1 million jackpot spurs him on

The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

Ricky Gervais: 'People are waiting for me to fail'

As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

Mad Men returns for a final fling

The suits are still sharp, but Don Draper has lost his edge
Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

Google finds a lift into space will never get off the ground

Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit