Cost of Living Squeezed More for Wealthiest Than Poorest, Report

Institute for Fiscal Studies (IFS) says typical British annual income will drop by £360 a year, while the poorest incomes will drop by £182 year.

Chancellor of the Exchequer, George Osborne, poses for a photograph with a newly minted one pound coin during a visit to the Royal Mint, in Cardiff March 5, 2011. He was attending the Conservative Party is in Wales annual spring forum. Toby Melville - WPA Pool/Getty Images

The wealthiest have been squeezed more by the recession than the poorest, says new research which bolsters the government’s claims that the cuts are progressive and fair on the poorest and most reliant on state benefits.

The research by the Institute for Fiscal Studies (IFS) says that the typical British annual income will drop by £360 a year, while the poorest incomes will drop by £182 year.

The report was published on the same day that new data showed inflation was rising faster than predicted, and just a day ahead of the chancellor’s budget announcement.

The IFS research, commissioned by the BBC, chimes with warnings from the governor of the Bank of England, who recently said that the current fall in living standards could be the most prolonged since the 1920s.

Overall, households are about 6 per cent worse off than they would be without the recession, the research says.
The IFS report states: “This represents the first time that incomes have fallen over a three-year period since the three years from 1990 to 1993, and the biggest three year drop in real living standards since 1980-83.”

The report attributed the drop in income to lower employment, lower interest on savings income, lower real earnings, and tax and benefit changes.

“The most important contributory factors are the failure of earnings to keep pace with inflation and lower than usual interest received from savings.

“Pensioners have been hit particularly hard by the reduction in the interest rate they receive on their savings,” the report states.

Data published by the Office of National Statistics (ONS) on Tuesday showed that the Consumer Price Index (CPI) had risen to 4.4 per cent in February, an increase of 0.4 per cent from January. The Retail Price Index (RPI) had risen to 5.5 per cent.

The ONS said that the the CPI had been pushed up in part by rising fuel costs (up 3.2 per cent on last year’s figures) and rising clothing and footwear costs (up 3.6 per cent following the January sales – a record increase).