Emphasis on boosting minimum wage while cutting benefits seems to have left low-income families worse off

The poorest fifth of the British population have suffered a 7% fall in their disposable household incomes over the past two years, leaving them no better off than they were in 2004-05, according to official figures.

The Office for National Statistics said this fall compared with an increase in median disposable household incomes of 0.4% a year over the last two years to £29,600. This weak growth rate follows relatively strong growth of 3% a year between 2012-13 and 2016-17.

Income growth had “stalled” as a consequence of an improved labour market – such as a higher employment rate – being “moderated” by an ongoing freeze on certain working-age benefits, the ONS said.

The figures will prove a disappointment for new chancellor Rishi Sunak, who is expected to tell the Commons next week in his first budget that recent Conservative party policies have supported the incomes of the lowest paid.

An emphasis on boosting the national minimum wage while cutting back on benefits appears to have left low-income families worse off after their basic living costs are taken into account.

Figures last year from HMRC showed pay for the highest paid 0.1% of the population rose nearly 6% between April and September last year, compared with 3.7% for the rest of the workforce. The Institute for Fiscal Studies (IFS), which analysed the data, said the acceleration in pay disparity would exacerbate inequality.

Adam Corlett, a senior economist at the Resolution Foundation thinktank, said employment growth for poorer households had failed to protect the incomes of the lowest paid, “reflecting the scale of the benefit freeze and other social security cuts – the impact of which is concentrated on the poorest households”.

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He said the the figures dispel claims from some commentators and politicians that income inequality is at its lowest level in 30 years.

The said: “The data lays bare the incredibly weak living standards growth the UK has experienced in recent years, contributing to a lost decade of income growth.

“The income squeeze, which abated in the mid-2010s, has returned in recent years. The new stagnation has affected households of all kinds, but the recent squeeze has been much worse for poorer households who have seen big living standards falls.

“Crucially, this has been driven by policy choices, with gains from higher employment more than wiped out by benefit cuts. The result is that poorer households are no better off than they were in the mid-2000s.”