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First dip in household disposable income in three decades

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The extent of the challenges facing the UK economy were set in perspective with the news that take home pay for the average British household fell last year for the first time since 1981.

According to the Office for National Statistics (ONS), actual disposable household income slipped by 0.8 per cent in 2010.

This marks the first real decline in income since 1981 when it dropped by 0.2 per cent.

The latest figure also marks the most significant decline in real income since 1977 when it crashed by 2.2 per cent.

The fall, which is just the sixth registered in the 60 years since records began, has been blamed on the failure of increases in wages to keep pace with rises in prices.

It appears that 2011 will be no better for consumers. It is estimated that the slide in household incomes will accelerate to as much as 2.0 per cent before levelling out in 2012.

The sluggish rate of the UK’s recovery, stagnating wage deals and the constant upward pressures on global commodity prices have combined to produce what are effective pay cuts for many British employees.

In 2010, employee compensation, which includes both salaries and benefits such as pensions and bonuses, expanded by 2.9 per cent compared with the 3.3 per cent climb in the Consumer Price Index.

The VAT increase has further helped inflation to outpace normal pay growth.