No less a body than the Institute of Fiscal Studies has warned living standards will be lower in 2015 than 2010. The IFS also say incomes are likely to be growing by 2015 but won’t have bounced back to 2010 levels.

The IFS was delivering its judgement on the Chancellor’s Autumn Statement, siding broadly with Ed Balls assertion that households have been squeezed since the Coalition came to power.  While the IFS could picks faults with both the Government and the Oppositions calculations, its expert view is household incomes have fallen. The Government had attempted to demonstrate household income had grown between its peak in 2008 and 2013. However the IFS’s opinion is that the measure used by the Chancellor is insensitive to changes in household income, meaning it’s ineffective.

We are used to politicians wrangling over statistics.  However, it’s not a surprise household incomes have fallen, given the backdrop of the deepest recession in many years. The IFS view is that the flip side of encouraging employment numbers is that earnings have fallen off the back of a fall in productivity.

You may recall, the Government’s aim is to balance the budget by 2018/19. Setting aside new spending commitments and tax cuts, the IFS think this is an extremely tough target. The Office of Budget Responsibility (along with the IFS) believes this requires the state to shrink to 1948 levels.

Therefore the IFS believes to avoid accelerating the pace of spending cuts  in the next parliament, tax increases and further cuts to welfare are required: One way or another the Chancellor has to find a further £12bn.

There is a concern voiced by unions and others that “austerity” may be here to stay.  Yet, the opposition have now said they’d seek a surplus in the next parliament. There are tough decisions to be made. But the over-riding concern is likely to be that if households don’t feel well off, it will stymie the long term recovery. That is likely to concern businesses.