Briefing Note (BN228)

Five years of recovery in living standards: middle incomes rise by more than for higher or lower income households

Date: 22 March 2018
Authors:
ISBN: 978-1-911102-86-1
DOI: 10.1920/BN.IFS.2018.BN0228

The latest official data on household incomes, covering the year 2016–17, has been published today by the Department for Work and Pensions. This means that we now have five years of data on household incomes since living standards reached their recent post-recession trough in 2011–12. In this briefing note, IFS researchers briefly summarise what the newly released data tell us about how living standards have changed after five years of recovery, how this differs between different groups, and the implications for income inequality and poverty.

Key findings on the recovery from 2011–12 to 2016–17 include:

1. According to new government data just released, real median (middle) household income grew by 1.9% in 2016–17. This means it has grown by 8.1% since the start of the recovery in 2011–12, and by 5.6% since 2007–08.

Note: Incomes have been measured net of taxes and benefits but before housing costs have been deducted and are expressed in 2016–17 prices. All incomes have been equivalised using the modified OECD equivalence scale and are expressed in terms of equivalent amounts for a childless couple.

Source: Department for Work and Pensions (2018) “Households below average income: 1994/95 to 2016/17”.

2. In 2016–17, middle income households saw slightly higher income growth than richer or poorer households. This continues the pattern seen since 2011–12: middle incomes have grown twice as fast as incomes for low or high income households.

Note: Incomes have been measured net of taxes and benefits but before housing costs have been deducted and have been equivalised using the modified OECD equivalence scale. Percentiles 1–4 and 98-99 are excluded because of large statistical uncertainty.

Source: Department for Work and Pensions (2018) and IFS calculations using the Family Resources Survey.

3. Income inequality has been essentially unchanged in recent years. Overall, it is below its pre-recession level, similar to the level in the early 1990s, but still above its level in the early 1980s.

Note: Incomes have been measured net of taxes and benefits but before housing costs have been deducted and have been equivalised using the modified OECD equivalence scale. Years refer to calendar years up to and including 1992 and to financial years from 1993–94 onwards. Figures relate to UK households from 2002–03 onwards and to GB households for earlier years.

Source: Department for Work and Pensions (2018) and IFS calculations using the Family Resources Survey and the Family Expenditure Survey.

4. 2016–17 saw further small declines in absolute income poverty to 19%. It has now fallen by 3 percentage points during the recovery, with falls for children, pensioners and working age adults.

Note: Incomes have been measured net of taxes and benefits and after housing costs have been deducted and have been equivalised using the modified OECD equivalence scale. The absolute poverty line is defined as 60% of median AHC income in 2010–11.

Source: Department for Work and Pensions (2018)

5. There has been no change in overall relative poverty in 2016–17. Relative poverty has now been around 21% or 22% in every year since 2002–03. However, during the recovery, child and pensioner relative poverty has risen by 3 ppts each – not due to falling living standards for poor families, but because their incomes have not kept pace with those on middle incomes. 

Note: Incomes have been measured net of taxes and benefits and after housing costs have been deducted and have been equivalised using the modified OECD equivalence scale. The relative poverty line is defined as 60% of median AHC income in each year. Figures relate to UK households from 2002–03 onwards and to GB households for earlier years.

Source: Department for Work and Pensions (2018)