UK Household Budgets Face Further Squeeze

The Institute for Fiscal Studies (IFS) has warned that household budgets could be squeezed for the next 10 years as the impact of tax rises and cuts is felt.

Its recent survey suggests families have seen the biggest fall in living standards in 30 years in the last financial year and warned that those on lowest incomes were likely to suffer a further significant reduction in their spending power.

The Treasury said plans to cut the deficit had maintained low interest rates and helped struggling families.

The IFS study also found that UK households, particularly those in the bottom half of the income distribution, had been relatively protected from the immediate impacts of the recession, partly because of state welfare systems and financial support.

But it said earnings, state benefits and tax credits had all fallen in real terms in the UK over the past year and that the pain of the recession had been delayed rather than avoided.

Research economist at IFS Robert Joyce, said: "The current economic downturn began more than three years ago, and may seem like old news.

"But, as in other developed countries, the most severe consequences of the recession on UK living standards have only just begun to be felt, and will continue to be felt for years to come."

Previous IFS research has shown that the decline in average living standards looks set to continue until at least 2013-14.

The government has been called upon to be ready to adapt given the current economic climate.


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