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Average household incomes have fallen for the first time since the recession in the 1990s, according to the Institute of Fiscal Studies (IFS).
The IFS said after tax rises in the 2002 Budget, income fell by 0.2% in between 2003 and 2004.
The changes mainly hit those in the middle income bracket, IFS said. Incomes of the poorest people in Britain grew in the same period, partly because of new, more generous tax credits.
The Treasury was quick to criticise the IFS analysis.
"The IFS analysis is complete rubbish," a Treasury spokesman told BBC online.
"These figures show that since 1997, reported average take-home incomes have risen by almost 20% in real terms and are rising again this year thanks to the maintenance of stable economic growth," he said.
