No rise in disposable income until next year?

11 February 2014

cashThings have been tough for most people recently, and if you’re currently underwater, probably tougher still. At least we know that things are on the up- only last month Chancellor George Osborne assured us that disposable incomes started rising in 2012/13, so if you haven’t personally felt the benefit, it’s bound to be just around the corner. However, a new think tank has suggested that maybe, just maybe, the Treasury figures aren’t all they’re cracked up to be.

The Resolution Foundation’s comprehensive review of household incomes concluded incomes will only start to rise above inflation in 2015, although this will be “barely positive”, with a no more than 1% rise in each of the next three years. And even despite 2015 showing the first rise in five years, the think tank predicts the disposable income will still be lower than in 2008:

"The living standards of the typical household will still be 3.5% lower in 2018-19 than they were at the start of the financial crisis of 2008, only just inching above the level they were last at in 2005-06.”

However, a recent Treasury study used by George Osborne clearly said that disposable incomes started improving in 2012/13, something completely contradicted by this report. George said that tax relief from a higher personal allowance had pushed up disposable incomes in the 2012/13 financial year, offsetting depressed wages and rising prices, especially gas and electricity hikes. Assuming the Treasury and Government ministers are not out-and-out lying, how can this be?

The answer, it appears, depends on how you measure income. Specifically falling income levels. Treasury officials have been criticised for admitting to excluding swingeing cuts in tax credits and benefits from their sums and ignoring a recent trend for falling wages. So long as you assume people’s income remains static even though it is falling, rises in disposable income come around much quicker, it seems.

But whether disposable income makes a comeback this year, last year or next year, don’t get too excited about splashing the cash. Gavin Kelly, the Resolution Foundation’s chief executive, said: "Our evidence suggests that the fall in living standards is bottoming out and should start to rise again next year. That's the good news and given year after year of decline it will come as a relief. But as things stand the recovery for families looks like being painfully slow – by 2018 we expect the typical household to still be worse off than they were before the crisis."


TOPICS:   Banking   Economy

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