An interesting and thought-provoking set of figures for the 2016/17 financial year has just been released by the Office for National Statistics (ONS), details of which can be seen below in an article which appeared in The Daily Telegraph today.
Roger Mundy, Managing Director, Beardsley Theobalds. 29th July 2017
Households better off in the past year, reveals ONS
Incomes increased over the past financial year as wages rose more quickly, aided by the rising income tax threshold.
The average household’s disposable income – after tax, benefits and inflation – rose by 1.8pc to £27,200 for the financial year 2016-17, the Office for National Statistics said.
Inflation has risen since then and wages have underperformed, with economists worried that spending power is now being eroded, undermining one driver of growth.
But the numbers up until March do help to show why the British consumer has been able to keep on spending so far, supporting the economy.
“There is a bit of momentum there – people’s spending is not based just on what is being earned now, but on what has happened in the recent past and expectations for the future as well,” said Martin Beck at Oxford Economics.
“So maybe that is helping to keep the appetite to borrow up a little bit.”
The longer-term picture on income is more mixed, with workers struggling while pensions have kept on rising. Overall, households’ disposable incomes have risen by 5.7pc since 2008, meaning the average family is £1,500 per year better off since the start of the financial crisis. Income fell from 2008 to 2013 but have risen by 11pc since that low point.
However, there is a sharp divide in the way the extra cash has been distributed. Over the past nine years the median retired household has seen its income rise by 14.9pc to £22,400 in 2016-17. By contrast the average non-retired household’s disposable income is £29,200, in effect staying flat since 2007-08.
“One factor is a rise in the number of households reporting receipts from private pensions or annuities; and another is an increase in average income from the state pension, due in part to the effect of the triple lock,” the ONS said, referring to the policy which increases pensions each year by the largest of average incomes, inflation or 2.5pc, guaranteeing that old age incomes rise faster than those of people in work.
In the past financial year the average retired household had a disposable income of £26,257, while their younger counterparts had £34,363 to spend.
The distribution of income growth across society as a whole has also changed a little as inequality drifts downward.
The Gini coefficient, a measure of income inequality, dipped to 31.5 in 2016-17, the lowest level since 1985 on the ONS’s calculations. The Gini coefficient stood at zero it would mean everyone had the same income, while a score of 100 would indicate one person earned all of the income and everyone else received nothing.
In part the fall in inequality is likely to be down to pensioner’s incomes rising from a lower level, closing the gap with younger households.