A report from the New Economics Foundation claims that Britons are all £128 worse off than we were in 2008.
The report contradicts official figures from the Office for National Statistics (ONS) and claims that incomes were hit much harder by the financial crash.
According to the New Economics Foundation, essential items that affect the cost of living were not taken in to account when calculating GDP. Additionally, the calculations also excluded the tax increases made by former chancellor George Osborne.
The report makes further claims that the rising cost of housing was not included in calculations, and the impact of Brexit on the value of the pound had been underestimated too.
Alfie Stirling, chief economist at the New Economics Foundation, said that official reports claiming that average incomes had recovered to pre-crash levels were only made possible by the ONS limiting how they calculated inflation:
“Official statistics suggest average livings standards returned to 2008 levels in 2015. But when calculated to reflect the true costs of living, our analysis has shown that a combination of the depth of financial crisis, austerity and the vote to leave the EU has meant that average living standards are in fact still yet to recover pre-recessions levels”.
He said that taking these extra costs into account would show that incomes were hit much harder as a result of the recession: “By this measure, and on average, the UK population is still poorer than it was more than a decade ago – something that would be entirely unprecedented in the modern records.”
The ONS divides the UK’s total income by the population to derive its annual figures of GDP per head. This number is then adjusted using the ‘GDP deflator’ in order to account for inflation.
Many economists have switched to using GDP per head to measure economic success, rather than purely relying on GDP. However, Mr Stirling says that the use of the GDP deflator has resulted in a situation in which “the official data doesn’t appear to bear out the lived experience”.
John McDonnell, shadow chancellor, said that living standards had been restricted as price increases had eaten into wages:
“It is clear from this report what most people already knew, that nearly a decade of austerity has created an economy of depressed incomes and living standards, low pay, long hours, insecure work, with low investment, low productivity and low growth.”
Kate Bell, head of economics for the TUC, said: “Working families in the midst of the longest wage squeeze for 200 years know the economy isn’t working for them. We need a new deal for workers so they get a fairer share of the wealth they create.”
The TUC published its own report back in January showing that the average person has lost £11,800 since 2008 in ‘real earnings’. Similar to the New Economics Foundation, they claim that increases in the cost of living, and cuts in benefits, affected wages more than the Treasury claimed.