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The average household has had to keep tightening its belt since the financial crisis, with the exception of those that are retired, according to statistics released by the ONS.
Between 2007-8, the year the financial crisis started, and 2011-12, the median disposable income for households dropped by 3.8%, after adjusting for inflation.
The median household income is the income of what would be the middle household, if all households in the UK were sorted in a list from poorest to richest. As it represents the middle of the income distribution, the median household income provides a good indication of the standard of living of the “typical” household in terms of income.
Between 2007/08 and 2011/12 original income, which is the income households get from employment and investments, fell from £37,900 to £32,600, while cash benefits rose from £3,100 to £4,600 over the same period. The fall in original income has mainly been driven by a fall in its largest component, wages and salaries, which fell from £33,100 in 2007/08 to £28,300 in 2011/12. In contrast, the rise in the cash benefits received by the middle fifth of non-retired households has a number of causes including rises in tax credits, the State Pension and housing benefit.
Between 2007/08 and 2011/12, the benefit element of tax credits experienced the largest absolute increase of any cash benefit received by the middle fifth of non-retired households, rising from £280 in 2007/08 to £610 in 2011/12. This is due to an increase in both the percentage of middle income households in receipt of the benefit element of tax credits (from 6.3% to 12.1%), and in the average amount of tax credits received. This is explained by a combination of factors, including the fall in original income for middle-income households over this period, which will have impacted on both eligibility for and the average value of tax credits received.
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