Household incomes will plummet 7.4% in just three years
Average household incomes are set to drop by a massive 7.4% in real terms between 2009/10 and 2012/13, a respected economic thinktank has warned.
Following the autumn statement by Chancellor George Osborne, the Institute for Fiscal Studies said that the median average income was now expected to be no higher in real terms in 2015/16 than it was in 2002/03.
After Mr Osborne extended his austerity programme beyond the next election, the IFS said public spending is now expected to drop by 16.2% in real terms over a seven-year squeeze until 2017.
"We are running out of superlatives to describe just how extraordinary are some of these changes," the thinktank's director, Paul Johnson, told a press conference in London.
Mr Johnson said the two-year 1% pay cap for public sector workers announced by the Chancellor would effectively wipe out the average "pay premium" enjoyed by male staff over their private counterparts.
But he added that the Government's public sector pension squeeze, which has led to strikes across the UK today, would still leave workers with "substantially more generous" provision on average than in the private sector.
The IFS said that per capita real household disposable income was set to be lower in 2016 than 2006.
By comparison, the worst previous decade on record saw growth of 14%.
Mr Osborne defended his strategy as he visited Brussels for talks on the eurozone sovereign debt crisis with his EU counterparts, insisting that cuts announced yesterday were to allow the Government to protect frontline services.
Mr Osborne said the Government's decision to cut spending and raise taxes had helped Britain avoid the problems seen in heavily-indebted eurozone countries such as Italy.
But he warned that a collapse in the single currency area could spill over and cause recession in the UK.