UK families ‘set to be £1,800 worse off by 2015’

The average family in the UK will likely be worse off to the tune of almost £1,800 a year by 2015, according to the Institute for Fiscal Studies (IFS).

While a childless couple is likely to miss out on £1,248 a year, once inflation is taken into account, families with two children are set to lose £10 a week more. 

The IFS also said less well-off families will be hit the hardest than those with higher incomes over the next three years.

According to the study, better off families have seen their incomes drop more than those in poorer situations since the recession hit, but those on lower incomes have had less money at their disposal than ever before.

Families earning more than £48,000 after tax saw their incomes drop by 6.3 per cent between 2007-08 and 2011-12. Meanwhile, those earning less than £12,000 a year will see their spending power drop by 4.5 per cent between 2011-12 and 2015-16.

It is the people on the lower incomes who will struggle the most between now and 2016.

Spending power in the UK has dropped sharply as a result of incomes failing to keep up with inflation rates. Changes to the benefits system have also seen people with less money to spend.

Robert Joyce, a senior economist at the IFS, said: "Most of the falls in real incomes associated with the recession have now happened for middle and higher income groups.

"But much of the pain for lower-income groups is occurring now, or is still to come."

The IFS said the biggest reason the poorest will be hit hardest was changes to the benefits system that are in the process of being introduced to help reduce the government's overall deficit.

Probably the most significant change is the benefits cap, but adjustments to housing benefit, the localisation of council tax benefit and the end of disability living allowance will also take its toll on those on the lowest incomes.

As a result of these modifications by the government, the IFS stated income inequality will be on the rise in the coming years, despite it falling in recent times.

Geographically, the north of England is set to fare the worst in the coming years considering it has considerably less wealth that those in the south-east.

A new report from the Office for National Statistics found 28 per cent of adults aged 45 to 64 living in the south-east of England live in households with wealth greater than £1 million, while the proportion in the north-west is just 14 per cent.

Low-income families are already struggling to make ends meet and it looks as though their incomes are set to drop even further in the coming years as inflation continues to rise.

Many families in the UK are lumbered with debt but are still trying to do the best for their children, often sacrificing leisure activities in order to do so.

This situation looks set to continue as firms freeze pay or increase it at a rate that does not match inflation.

By Amy White