Poor growth in living standards to affect low income families the most

Low income households will be the most affected by poor growth in living standards due to the "long shadow" of the financial crisis

A report by the Institute of Fiscal Studies said that British households will be £5,000 a year worse off than previously forecast.

The think-tank said that average household income will not rise in the next two years and will be 4% higher in five years.

Tom Waters, an economist at the IFS and author of the report, said: “If the OBR's (Office for Budget Responsibility) forecast for earnings growth is correct, average incomes will not increase at all over the next two years.

“Even if earnings do much better than expected over the next few years, the long shadow cast by the financial crisis will not have receded.”

The IFS said that if earnings grow in line with the OBR forecast, median income in 2021–22 will be only 10% higher than it was in 2007–08.

It projects a rise in absolute child poverty to about 30% in 2021-22 from 27.5% in 2014-15 due to cuts to working-age benefits.

However, pensioners’ median income will grow 6.8% between 2016–17 and 2021–22, compared with just 3.3% for non-pensioners.

After housing costs have been deducted, median pensioner income is projected to be 7.7% higher than median income for the rest of population by 2021–22, having been nearly 10% lower in 2007–08.

Campbell Robb, chief executive of the Joseph Rowntree Foundation, which the IFS produced the report for, said: "These troubling forecasts show millions of families across the country are teetering on a precipice, with 400,000 pensioners and over 1m more children likely to fall into poverty and suffer the very real and awful consequences that brings if things do not change.

"It is essential that the prime minister and chancellor use the upcoming Budget to put in place measures to stop this happening. An excellent start would be to ensure families can keep more of their earnings under the Universal Credit."

The IFS expects the fall in inequality since the recession to be reversed following lower working-age benefits, meaning this was partly why it expects the gap between the rich and poor to widen.