No abstract

This Briefing Note provides an update on trends in living standards, income inequality and poverty. It uses the same approach to measuring income and poverty as the government employs in its Households Below Average Income (HBAI) publication. The analysis is based on the latest HBAI figures (published on 27 March 2007), providing information about incomes up to the year 2005-06. The measure of income used is net household weekly income, which has been adjusted to take account of family size ('equivalised'). The income amounts provided below are expressed as the equivalent for a couple with no children, and all changes given are in real terms (i.e. after adjusting for inflation). For the first time in recent years, data are available for the whole of the United Kingdom, not just Great Britain, but data for Northern Ireland are only available from 2002-03. Some comparisons over time are provided for Great Britain only, but others will compare statistics for GB before 2002-03 with those for the UK afterwards. Living standards and inequality Median equivalised disposable income in Great Britain in 2005-06 was £363 per week: half the population have higher incomes than this and half lower. This amount is considerably lower than the average (mean) income of £445 per week. For the fourth year in a row, both mean and median income grew modestly compared with the growth during Labour's first term: median income was 1.0% higher in 2005-06 than in 2004-05, and mean income 1.3% higher. These represent much smaller rises than the average annual rises since 1996-97, which have been 2.0% for median income and 2.3% for the mean. There is now clear evidence that the rapid growth in household disposable income experienced in the government's first term came to a halt after 2001-02. Income growth since 2004-05 has tended to be faster the higher are incomes: while median income grew by 1.0%, incomes amongst the poorest fifth of the UK fell by 0.4%, and incomes of the richest fifth rose by 1.5%, though it should be noted that none of these changes is significantly different from the others or from zero. Many measures of income inequality rose slightly between 2004-05 and 2005-06. According to the most common measure, the Gini coefficient, income inequality in 2005-06 has reached its highest level since 2001-02, and is once again statistically significantly higher than that which the Labour government inherited. On the other hand, other measures of inequality that do not take into account incomes at the very top and very bottom of the income distribution, such as the 90:10 ratio, have fallen since 1996-97.

Public expenditure on education in the UK represents around £90 billion, or 4.3% of national income. Yet until last year, there was no comprehensive analysis of how that expenditure is targeted at different stages of education, how it has changed over time, the factors driving those changes, and the associated pressures and challenges. That gap was filled by the 2017 IFS report-funded by the Nuffield Foundation-Long-run comparisons of spending per pupil across different stages of education. The influence of that report on policy debates convinced both the Foundation and IFS of the value of producing this type of analysis on a regular basis. All those working in the education system, as well as the wider public, stand to benefit from a clear and independent assessment of trends in education spending over time and from better understanding the balance of public and private financial contributions at different stages. Such data are essential considerations in decision-making, particularly in the context of continued pressure on public finances, economic uncertainty, and rising pupil and student numbers. It is for these reasons that we have worked with IFS to instigate a series of three annual reports on education spending, of which this is the first. The report provides impartial analysis of spending across each stage of education, complementing the Foundation's goal to explore the impact on outcomes of educational participation across the systemfrom the early years, through school, and into further and higher education and vocational training. Each report will feature a more detailed focus on a particular stage of education, and this year that focus is on further education (including school sixth forms and adult education). The authors show that further education has been a big loser from education spending changes over the last 25 years. There have been significant cuts to spending per student since 2010, and further changes are on the horizon in terms of the regional devolution of responsibility for adult education, the tight timescale for the development of the new T levels, and the continued focus on apprenticeships for adult learners. The Nuffield Foundation has long been concerned about the particular challenges facing further education, and its relative neglect in both financial and policy terms. We are keen to improve the evidence base in this area and hope that this report will help to generate discussion, and ultimately interesting research proposals that we might consider funding. We extend our thanks to the IFS team, in particular to Luke Sibieta, who has led the analysis, and to his co-authors Chris Belfield and Christine Farquharson. We hope the publication of this series of reports will become an important part of the education calendar.

We study the short-and medium-term impacts of the recent recession on the distribution of net household income in the UK. We document trends in the distribution of income during and immediately after the economy's 6.3 per cent contraction between 2008Q1 and 2009Q2. We then use a tax and benefit microsimulation model combined with macroeconomic and As in other countries, immediate impacts of the recession on net household incomes are remarkably hard to detect, but the pain was merely delayed until 2010-11 and beyond. We find that the major difference between income groups is in the timing of the reductions in income, rather than in their magnitude. For those in the middle and upper parts of the distribution, dependent mainly on labour market income, falls in real income happened largely between 2009-10 and 2011-12. For those towards the bottom, dependent more on benefit incomes, falls in real income will happen largely as a result of the post-recession fiscal tightening between 2010-11 and 2015-16. We explore the sensitivity of the results to different scenarios for employment and earnings: the central and qualitative conclusions prove robust. Policy points• We project that the reductions in household income between 2007-08 and 2015-16 will be spread quite evenly across the income distribution.• The timing of the recession's impact is very different across income groups. Those on middle and higher incomes, largely dependent on labour market incomes, were hit immediately after the recession as real earnings fell sharply. Lower-income families, and in particular those with children, tended to fare less badly than others over that period, but are being hit relatively hard by the tax and benefit measures during the post-recession fiscal consolidation.• The large planned net 'takeaway' from households during the fiscal consolidation is a major driver of the pattern of income changes that we expect to see up to 2015-16. Qualitatively, our conclusions are therefore robust to the direct impacts of quite large deviations in employment and earnings from their forecast levels in the medium term.

The Gini coefficient has been calculated using incomes that have been equivalised, are net of all direct taxes and have been measured before housing costs have been deducted.