Britain is in 'lost decade' as living standards dive

Britain is suffering a "lost decade" with the standard of living plummeting for millions, leading economists warned today.

Millions of families will see their income fall by nearly £2,500 and living standards would not rise on average for 13 years, the report warns. Average household incomes would drop by a "whopping" 7.4 per cent as they fail to keep up with inflation, between 2009/10 and 2012/13, according to the Institute for Fiscal Studies.

This would be the biggest fall since the Seventies oil crisis and means a couple with children being £2,496 worse off, a couple without children £1,768 and a single person £1,196. Households will also on average see their disposable income fall by 4.7 per cent between 2009 and next year, the biggest drop since the Fifties.

"We are running out of superlatives to describe just how extraordinary are some of these changes," said IFS director Paul Johnson. "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."

The IFS also said that George Osborne's cuts amounted to 16.2 per cent over seven years, the biggest such fall since the Second World War. It also said that public sector workers are paid on average 4.3 per cent more than private sector workers. After yesterday's cuts in his autumn statement, Mr Osborne said: "If we don't deal with our debts, we will go bankrupt."

The Chancellor yesterday announced sharply lower growth figures, down to just 0.7 per cent next year, and admitted it will be "hard to avoid" a full- blown recession if the eurozone stays in crisis. He imposed a one per cent pay cap on public sector workers. Men working in the public sector will still be better off than many in the private sector despite pay and pension cuts, economists said today. The IFS said Mr Osborne's wages squeeze would cut the "average estimated pay premium" currently enjoyed by many male public sector workers compared with their counterparts in the private sector.

But the economists said this would not amount to any "general penalty" making public sector workers worse off than those in the private sector. They also said that public sector workers would continue to enjoy better pensions despite changes to their schemes.