Furthermore, the IFS predicted that when figures for 2011-12 are released they will show average incomes falling again and the process will continue right up to 2016 when real disposable income will have slipped back to the levels last seen in 2002.

The main reason for incomes falling was a drop in the real earnings of those in employment because many had accepted very small pay rises or even pay freezes to keep their jobs during a time when inflation rose to over 5%.