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Last Updated: Thursday, 31 March 2005, 08:37 GMT 09:37 UK
Average incomes 'fell last year'
Bank notes
Take-home pay has fallen, the IFS says
Average household incomes have fallen for the first time in a decade, says the Institute of Fiscal Studies (IFS).

The IFS says income after tax and benefits fell by 0.2% between 2003 and 2004, due partly to rises in national insurance payments in the 2002 Budget.

But the IFS says the incomes of the poorest people in Britain grew between 2003 and 2004, partly because of new, more generous tax credits.

In response, the Treasury described the IFS research as "complete rubbish".

Gap shrinking

The IFS analysis of official government figures concluded that average incomes fell from 409 to 408 a week.

The self-employed and high earners suffered the biggest income falls, according to the IFS. The incomes of the richest fifth of households fell by about 1%.

The IFS analysis is complete rubbish - these figures show that since 1997, reported average take-home incomes have risen by almost 20% in real terms

But the IFS said that the incomes of the poorest fifth of households rose by about 1%.

As a result, overall, the gap between Britain's rich and poor shrank for the third successive year.

"The incomes of poorer households were boosted by new and more generous tax credits, while the better off were hit by rises in income tax, national insurance and council tax," said Andrew Shepherd, an IFS researcher.

"Not surprisingly, the redistributive package has nudged inequality lower although the government cannot yet claim that it is definitely on a downward trend."

The IFS said that the drop in take-home income was due to a combination of national insurance rises and the freezing of income tax personal allowances in the 2002 Budget.


The Treasury was quick to criticise the IFS analysis.

A Treasury spokesman said the 0.2% drop could be explained in a number of ways.

The most significant was the large drop in take-home incomes reported by self-employed individuals whose profits were hit by worldwide economic slowdown.

Incomes would have actually risen by 1.8% if that group was discounted, the Treasury added.

"The IFS analysis is complete rubbish," a Treasury spokesman said.

"These figures show that since 1997, reported average take-home incomes have risen by almost 20% in real terms and are rising again this year thanks to the maintenance of stable economic growth."

An explanation of the statistics

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