The incomes of the poorest households in the UK slumped last year while there was the largest rise in poverty since Margaret Thatcher was in power, according to new projections from the Resolution Foundation.
The figures show the extent to which a combination of Brexit and government austerity is imposing a serious squeeze on living standards.
Official survey data only goes up to the end of 2016, but with the help of statistical extrapolation and adjustment techniques for historical patterns, the Resolution Foundation has created a “nowcast” series which creates a credible estimate of where the data is likely to be heading.
The think tank’s projections suggest real incomes for the poorest third of the working-age population fell in 2017-18 by between £50 and £150 as inflation eroded incomes and government cuts to tax credits and benefits finally began to bite. For the rest of the population incomes were stagnant.
Inflation spiked above 3 per cent last year, mainly thanks to the record slump in sterling in the wake of the Brexit vote, while average wages remained weak by historic standards.
The foundation also calculates the official poverty rate – defined as those families living on incomes of less than 60 per cent of the median after accounting for housing costs – rose from 22.1 per cent to 23.2 per cent, the biggest single year jump since 1988.
However, Resolution said this jump was “dwarfed” by the increase in the child poverty rate, which shot up in 2017-18 from 30.3 per cent to 33.4 per cent.
“2017-18 was a strikingly bad year for lower income households as the 2015 package of benefit cuts began in earnest, in combination with higher inflation,” the think tank said.
As part of its drive to eradicate the overall deficit, the Conservatives have, since 2015, frozen the nominal value of tax credits, child benefit and housing benefits. The unexpected spike in inflation after the Brexit vote has accentuated the pain.
However, Resolution’s latest “Living Standards Audit” goes considerably further this year than in previous editions, delving into the question of how well official data captures the true UK picture.
It points out that grossed-up survey data of benefit spending does not match total government reported outlays and argues that, if one statistically adjusts for this, the picture of the past 15 years on incomes and poverty changes quite considerably in some respects.
First, it suggests that child poverty fell in the 2000s more rapidly than currently thought, dropping from 3 million to around 1.6 million. If correct, this implies that the previous Labour government actually delivered on its pledge to halve child poverty, despite the official verdict that the target was missed by some 600,000 children.
Second it suggests that child poverty has actually been rising since 2011 at double the rate implied by official data (although the level of child poverty today would also be lower at around 25 per cent rather than 30 per cent).
“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,” said Adam Corlett, senior economic analyst at Resolution.
Despite the revised Resolution income series, the think tank still estimates that median incomes began stagnating in the years before the 2008-09 financial crisis, following exceptionally strong growth in the late 2000s.
It attributes this slowdown to rising housing costs, a fall in hours for low-skilled male workers, a slowing of benefit increases and a larger share of incomes going to the top 1 per cent of earners.
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