LONDON: British households are still £500 a year worse off than before the financial crisis in 2008, according to new official figures which underscore the long-term damage inflicted on families’ finances by the deep recession and lacklustre recovery.
In its annual assessment of households’ finances, the office for national statistics said that median disposable – ie after tax - income increased to £24,500 in 2013-14; but still remained £500 a year lower than in 2007-08 once inflation is taken into account.
The pain has not been felt evenly, however. Pensioners, whose income has partly been protected by the Conservatives’ “triple lock”, which sees the state pension increase in line with the highest rate of inflation, average earnings or 2.5%, are on average better off than they were in 2007-8.
The ONS finds that the median disposable income for retired households has increased by 7.3%, or £1,400 a year in real terms, compared with a decline of 5.5%, or £1,600, for non-retired households.
The news may intensify political debate about whether retirement benefits can continue to be protected in the latest round of public-spending cuts — though the ONS also finds that inequality among retired households has worsened.
Britain’s economic recovery has been characterised by a prolonged squeeze on wages, with many workers suffering flat or declining living standards for several years, in what Labour described as a “cost of living crisis”, in the run-up to May’s general election.
David Cameron has said he hopes to create a higher-wage economy, instead of using taxpayers’ money to supplement the incomes of struggling workers through the tax credit system — though critics see his argument as a hasty justification of cuts to in-work benefits widely expected in next week’s budget.
The ONS analysis also revealed the different tax contributions made by households at the top and bottom of the income scale. While income tax weighs more heavily on the richest earners, the poorest households tend to spend more of their income, and thus pay a higher proportion of their income in indirect taxes such as VAT.
In total, the richest fifth of households paid an average of £29,200 in taxes in 2013-14, compared with £4,900 for the poorest fifth. That accounted for 34.8% of income among the richest fifth, and 37.8% for the poorest.
With the chancellor putting the final touches to his budget, Frances O’Grady, general secretary of the TUC, said the heavier overall burden for the poorest should raise questions about his plans to ease taxes for the wealthy, including by introducing a new inheritance-tax loophole for family homes.
“There can be no argument for reducing taxes for the richest when they are already contributing a smaller share of their income than the poorest,” she said. “The government should instead be looking at how the wealthiest can make a fairer contribution to improving the public finances.”
The ONS analysis also underlines the extent to which the tax and benefits system, and benefits in kind, such as public services, redistribute income, helping to narrow the gap between rich and poor.
“The poorest fifth of households received the equivalent of £7,500 per year from all benefits in kind, compared with £5,500 received by the top fifth. This is partly due to households towards the bottom of the income distribution having, on average, a larger number of children in state education,” the ONS said.
Before taxes and benefits, the richest fifth of households earn 15 times that of the bottom fifth: £80,800 compared to just £5,500. But after taxes and benefits-in-kind, the gap is narrowed to four-to-one. In total, the ONS estimates that 13.7m households, more than half of the total, receive more than they pay out in taxes.