Britons Enduring 13-Year Squeeze on Living Standards, IFS Says

British workers will be no better off in 2015 than they were in 2002 as the economy struggles to stay out of recession, the Institute for Fiscal Studies said.

Real median household incomes will fall by 7.4 percent in the three years through March 2013, the most since the mid 1970s, the London-based forecaster said in London today.

“We are running out of superlatives to describe just how extraordinary are some of these changes,” Paul Johnson, director of the research group, told reporters. There will be “more than a decade without any increase in living standards for those in the middle of the income distribution.”

Chancellor of the Exchequer George Osborne yesterday said Britain faces another five years of austerity to fill the hole in the public finances after his fiscal watchdog slashed its forecasts for economic growth amid the euro-region debt crisis.

Savings will be made by further squeezing the wages of state workers, who will see their pay increase by no more than 1 percent after the current freeze ends in 2013.

Adjusted for inflation and based on current prices, median weekly earnings for a couple with two children will be 606 pounds ($953) in 2015 compared with 612 pounds in 2002, said Robert Joyce, an IFS economist. Their median income in 2012 will be 590 pounds, compared with 638 pounds in 2009, he said.

Total real household disposable income will fall by 4.7 percent between 2009 and 2012, easily the biggest three-year decline since records began in the mid 1950s, the IFS said.

Public-sector workers are better paid and enjoy more generous pensions than their private sector equivalents, the IFS said, as state workers staged a one-day strike today over plans to make them contribute more toward their pensions and retire later.

Hourly wages for government workers are 7.5 percent higher than those in the private sector, the IFS said. While Osborne’s pay squeeze will erase the gap for men by 2015, his pension reforms will leave state employees with retirement incomes “on average substantially more generous than those enjoyed by private-sector workers,” Johnson said.

To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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