Falls in real earnings hit well-off households particularly hard after the recession, while many poorer households were initially relatively protected by the benefits system. But poorer households are the hardest hit by the benefit cuts being implemented in the years to 2015–16. The likely net result is that income losses resulting from the recession will be spread quite evenly across income groups.
These are among the key findings of new IFS research published today co-authored by ISER’s Professor of Economics, Mike Brewer with James Browne, Andrew Hood, Robert Joyce and Luke Sibieta at the Institute for Fiscal Studies, in a pre-released article from a special issue of Fiscal Studies to be launched on Wednesday 12th June. This research provides the first comprehensive estimate of what the distributional impact of the recession will be in the medium term.
The study, The Short and Medium Term Impacts of the Recession on the UK Income Distribution, follows trends in the distribution of income from 2008 combined with demographic and macroeconomic forecasts and tax and benefit microsimulation to project incomes up to 2015-16.
The research finds the timing of the impact of the UK’s deepest recession since World War 2 is very different across income groups. Those on middle and higher incomes, largely dependent on labour market incomes, were hit immediately after the recession as real earnings fell sharply. Lower-income families and in particular those with children tended to fare less badly than others over that period but are being hit relatively hard by the tax and benefit measures during our current post-recession fiscal consolidation.