Research by the Institute for Fiscal Studies (IFS) published today has revealed that only those over the age of 60 have not experienced any drop in income since the financial crisis hit the UK.
Working adults, together with the 20-something generation have all experienced substantial falls in income since the downturn with only pensioners and those on the verge of retiring holding on to their incomes at pre-crisis levels.
The revelation is likely to increase pressure on the government to cut pensioner's benefits such as the winter fuel allowance and free television licences although the government have consistently avoided public debate on the matter for fear of alienating the powerful 'grey' vote before next year's general election.
Pensioner Benefits Unlikely to Change
The report, funded by the Joseph Rowntree Foundation also found that pay, employment and incomes all fell furthest for young adults, with the recession and its aftermath being much harder on the young than the old. The employment rate of those in their 20s has fallen and real pay among young workers has fallen much faster than among older workers.
Key findings show that between 2007-08 and 2012-13, median household income fell by 13% among 22-30 year olds, 7% for 31-59 year olds with the median income remaining the same for those aged 60 and above.
There are clear indications of families pooling funds together and sharing the same household in order to survive financial hardship with just over a quarter of adults aged between 22-30 living with their parents. Median household income for those living with parents fell by 8% but without their parents' incomes, the fall would have been 17%.
More Young Adults Living With Parents
Despite young adults seeing the sharpest falls in housing costs, benefitting from lower mortgage interest rates because they have the most mortgage debt, the rapid decline in home-ownership across generations continues. The home ownership rate for 25 year olds has halved in 20 years: 21% of those born in the mid-80's owned at home at this age compared with 34% of the mid-70's generation and 45% of the mid-60's cohort.
According to the report the recession has had differing impacts across the UK with real falls in median income ranging from 8% in Northern Ireland to 2% in the East Midlands. After deducting housing costs from income, London saw the joint biggest falls (with Northern Ireland). The IFS could not identify any clear relationship across the country between pre-crisis income levels and income changes since the crisis and in particular, no evidence of a North-South divide.
No Evidence of a North-South Divide
Pensioner incomes have continued to grow relative to working-age incomes. When measured after deducting housing costs, median income among pensioner households overtook that of working-age households in 2009-2010 for the first time since records began in 1961.
The most shocking statistics in the report relate to the increasing wealth gap in the UK with income poverty rising by 600,000 to 14.6 million (23.2%) in 2012-13, 3 million higher than its low point in 2004-05. These figures include the official absolute poverty line for incomes measured after deducting housing costs, taking into account smaller than average falls in housing costs for low-income households.
The impact of the recession seems to have filtered down, unsurprisingly, to those on the lowest incomes in the UK. The official measure of children living in poverty rose by 300,000 with data showing that this figure has been on an upward trajectory since 2007.
The Number of Children Living in Poverty Increases Year-on-Year
Research economist at the IFS, Jonathan Cribb commented: "Young adults have borne the brunt of the recession. Pay, employment and incomes have all been hit hardest for those in their 20's. A crucial question is whether this difficult start will do lasting damage to their employment and earnings prospects".
"This research provides authoritative and robust evidence on recent changes to living standards as households emerge from the economic downturn", said Chris Goulden, head of Poverty Research at the Joseph Rowntree Foundation. "Policy-makers should be aware that living standards have fallen for rich and poor with the youngest households faring particularly badly," he added.
Unfortunately, it would appear that the generation of pensioners who have fared the best since the downturn are likely to remain financially secure despite increased poverty in the UK, due to the importance of their votes in next year's general election.
- Tuesday 15 July 2014