For more than two years there has been some amount of concern over what appeared to be a freeze in wages whilst taxes and inflation continued to rise. Now according to the Institute for Fiscal Studies, incomes should start to increase once again even though taxes are higher and benefits are being cut. This year the average family should see a rise in taxes by about £370 per family but inflation is expected to begin falling again which should offset the higher taxes to some degree.
Over the past two years the median income of the UK’s average family had dropped by 6.4pc which is the figure calculated by the IFS. Much of this squeeze is said to have been the direct result of the coalition government’s austerity scheme, but they still believe the worst is over. Even so, recovery to family finances is still expected to be slow-moving as salaries are not expected to rise quickly nor are prices expected to fall quickly.
The peak on consumer prices occurred September 2011 when the figure was 5.2% but by February of this year had fallen once again to 3.6pc. The most recent forecast by the BOE states that there is some amount of hope that the rate will drop even further and that by the end of next year it should be below 2pc.
If this forecast holds true, there will be only a slight gap between income and inflation and as reported by the Telegraph, this has political significance a few years down the road in an election year. By that point there should be a negligible gap and/or a return to growth however, the ‘real’ median income would still be lower than it was a decade ago.
