Largest fall in income since 1981

empty wallet

Take-home incomes for UK households fell by 3.1% between 2010 and 2011, according to a report from the Institute for Fiscal Studies (IFS).

This is the first time the figure has dropped in the past five years and it's the largest drop since 1981.

The main reason for such a dramatic drop was rising inflation and the impact of the recession between 2008 and 2010, which led to many people's salaries falling or being frozen.

Income inequality

Looking forward, the IFS says it expects incomes to fall again between 2011 and 2012 and after taking account of inflation. It also predicts that by 2016 the amount of money we take home will be equal to that seen in 2002 and 2003.

On a slight positive note, income inequality also fell because the richest people in society have experienced the largest drop in incomes while incomes of some of the poorest people have been protected by state benefits.

"The fall in medium income in 2010-11 of 3.1% was the largest one-year fall since 1981 and returned it to the level last seen in 2004-5," explains Jonathan Cribb, research economist for the IFS.

"This was driven largely by a decline in real earnings as the impact of the late 2000s recession on incomes finally started to become clear," he adds.