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Autumn Statement: Many In UK Face 10-Year Freeze In Living Standards, IFS Says

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Many in the UK face a 10-year freeze in their living standards, according to analysis by the Institute for Fiscal Studies | AP

Millions of people in the UK face a decade without meaningful increases in their living standards, according to analysis from the Institute for Fiscal Studies (IFS).

Household disposable income will have fallen nearly 5% between 2009 and 2012, the largest fall over a three year period since records began in 1955, according to its analysis of the Office for Budget Responsibility report.

Tax and benefit reforms, announced in the chancellor's autumn statement , will be net negative for lower-income families with children and net positive for people in the middle and upper ends of the income distribution, according to the IFS, although yesterday's changes are only a small change from policies already put in place by the coalition.

Slow growth, high unemployment and rising costs have contributed to a 7.4% fall in real median net household income between 2009-10 and 2012-13, the IFS said. Per capita real household disposable income (RHDI) will still be below 2006 levels in 2016

The UK is firmly in the worst period for changes in living standards since the 1950s and 60s, the think tank said.

The OBR yesterday cut its forecasts for 2011 and 2012 gross domestic product growth to below 1%, and said that the unemployment rate would rise from its current 8.1% to 8.7% next year. In response, George Osborne announced a package of measures, which included freezing rises in child tax credits, but raising the child elements of working tax credits. Fuel duty rises were postponed.

Austerity measures will be extended for two more years, taking the total number of consecutive years in which spending will have been cut to six. "Certainly there has been no period like it in the last 60 years," Paul Johnson, director of the IFS, said.

"We are running out of superlatives to describe just how extraordinary are some of these changes. Our own estimates suggest that real median household incomes will be no higher in 2015–16 than they were in 2002–03, more than a decade without any increase in living standards for those in the middle of the income distribution," Johnson said.

The government's targets to eradicate child poverty by 2012 are now likely to be missed, the IFS said.

"Some of those out of work, and certainly pensioners dependent on state benefits, will be faring rather better than working families over the coming period. Failure to index some elements of tax credits, and the reversal of previous decisions to increase child tax credits in real terms, will leave some poorer families worse off and will lead to an increase in measured child poverty," Johnson said. "Yet another failure to implement pre-announced increases in fuel duties will benefit those somewhat further up the income distribution."