Families' incomes drop

HOUSEHOLD incomes fell last year for the first time in ten years, Government figures revealed yesterday. The main culprit is a succession of tax increases under Labour which have filtered through to household wealth, leaving families worse off than the year before.

The news is embarrassing for Tony Blair, who put the economy at the centre of his campaign for a third term in office, promising 'rising prosperity in an opportunity society'. And the revelation will also undermine Downing Street's efforts to win back public trust since it comes against a backdrop of plunging manufacturing output, flagging High Street sales and analysts predicting tougher times ahead.

Figures buried in a survey by the Office for National Statistics reveal average disposable income fell from £466 a week in 2002/03 to £464 a week in 2003/04. Disposable income is the amount of money a household ends up with after tax, National Insurance and pension contributions have been deducted from their wages.

It also includes benefit paid, including income support and tax credits. All the statistics take full account of inflation. The last time disposable incomes suffered such an abrupt setback was in the dog days of John Major's Tory Government as the country struggled to overcome the humiliation of sterling's ejection from the Exchange Rate Mechanism and the large number of home repossessions.

The analysis proves that the Chancellor's tax-raising 2002 Budget ended ten years of steady growth in household income. It also means that Mr Blair's triumphant election campaign boast that 'Labour's economic record is unprecedented' looks rather less impressive.

But it is not the first time the Government's claims on the economy have been made to look threadbare. In the run-up to the election, the respected independent think tank the Institute for Fiscal Studies published its own study suggesting take-home pay had fallen for the first time in ten years from £409 to £408 per week.

Then New Labour went into overdrive in an all-out attempt to play down the figures. A Treasury source said the most significant reason for the drop was a fall in income among self-employed workers and City high rollers who had received lower bonuses.

Ministers claimed if these people had been taken out of the study, take-home incomes would actually have risen and they told reporters to wait for the official figures to be published after the election, when the true picture would become clear.

But yesterday the official figures were released - and they are worse. Again the Treasury tried to decry their importance, with a senior spokesman insisting families were still better off.

He said: 'The reality is that in real terms since 1997 average incomes have increased by 19 per cent and the income of a typical family has increased by 17 per cent with living standards rising in double digits for every part of the income spectrum.

'The income of the typical family in Britain has risen every single year since 1997, including 2003-04,' he added.

Officials argued privately that the latest statistics did not give the true picture because they were based on a survey of expenditure, not income. They stressed that the figures on income were based on a much smaller sample than surveys used for 'genuine' income analysis.

The statistics 'tend to be rather misleading' because small changes among those on the highest incomes skew the results, they added.

For example, a 1% increase in the income of 50 families on £20,000 a year would be offset by a 1% decrease of someone on £1million a year, they pointed out.

Separate National Accounts figures on income show disposable incomes rising from £12,290 per head in 2003 to £12,599 per head in 2004, they claimed.

But shadow chancellor George Osborne said: 'This is proof that Gordon Brown's relentless round of stealth taxes is actually leaving people with less cash in their pockets. People should be getting better off, not worse off.

'It is all the more shocking that all this extra tax has not delivered the public service improvements people were promised,' he said.