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It would take at least until 2014 to get the economy back to the level of 2008 yet it would still be smaller than during the boom years, according to figures released by the Office for Budget Responsibility (OBR).  The influential think tank Institute of Fiscal Studies (IFS) warned this meant most Britons would see their “living standards” for a few years more.

According to the analysis by the IFS, living standards would continue to be lower than what it used to be in 2002 a decade ago.  So by the end of this Parliament in 2015, UK families would be worse off than they were in the early 2000’s.  The IFS Director Paul Johnson highlighted that this was unprecedented in the past six decades and that the think tank was running out of superlatives to describe the current economic situation.

According to the IFS analysis, an average UK household  - a couple with children had a disposable income of £31,824 a year after taxes and housing costs in 2002 and it would be £300 less in 2015.  The analysis predicts that household incomes in real terms would be lower in 2016 than in 2006.  

However, the worst impact on median families is being felt right now.  The think tank suggests that income for median families has seen their net real income fall by 7.4% in the last three years starting from 2009/10.  This has never happened before, according to the analysis.

"Certainly there has been no period like it in the last 60 years," Paul Johnson said. “We are running out of superlatives to describe just how extraordinary are some of these changes. 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," he added.

The think tank also warned that the government would miss meeting its own child poverty reduction targets.  Especially since the cuts announced in the Chancellor’s autumn statement would have the biggest negative impact on low income households. "Failure to index some elements of tax credits, and the reversal of decisions to increase child tax credits in real terms, will leave some poorer families worse off and will lead to an increase in measured child poverty,” Johnson added.

Alison Garnham, chief executive of the charity Child Poverty Action Group, said: "The IFS analysis confirms that the chancellor's new tax and benefit measures are a takeaway from low-income families with children to those at the middle and top. It is particularly perverse to reduce incomes of the lowest-paid working families by reducing tax credits when this is the group the government claims it wants to help through improved work incentives."