The IFS says the gap between the richest and poorest households has narrowed but regional disparity remains.
Falling incomes for top earners and rising employment have helped narrow inequality, though some UK regions are being left behind, according to the Institute for Fiscal Studies.
Sky reports that the independent research institute’s annual report on living standards, poverty and inequality – which is based largely on official figures covering 2015/16 – said the Midlands had suffered particularly in geographical terms.
Average incomes in the East and West Midlands were 6 per cent and 9 per cent below the national average respectively, the report said.
It also identified northern England and Wales as two further regions where average earnings were no higher than incomes in the South East in the late 1990s.
The study said London remained the most unequal part of the UK but there had been a “particularly large fall in income inequality” because low-income households had seen their earnings jump more than 10 per cent since the late 2000s.
It charted a move in the other direction for the top 10 per cent of earners and also pointed to employment growth.
The report was funded by the Joseph Rowntree Foundation, whose chief executive Campbell Robb said: “These alarming figures highlight how far behind some parts of the UK have fallen, with millions of people seeing their incomes stagnate or even worse, decline.
“Rebalancing our lopsided economy must be a priority if we are to create a country that works for all.
“Average incomes in the Midlands, Wales and the north of England have fallen further behind the rest of the country.
“Low earnings are an increasingly important driver of poverty, with the proportion of children in poverty in working households rising sharply in recent years.
“The Government must make urgent progress with its industrial strategy, working across party times to deliver a plan that drives up skills and productivity across the country.
“That will deliver more and better jobs and higher living standards that people desperately need.”
The report’s findings cover a period before the return of the household income squeeze this year – with inflation outpacing wage growth again for the first time since 2014 in the wake of the Brexit vote.
A Treasury spokesman said: ‘We are building an economy that works for everyone by sharing prosperity and opportunity throughout the UK so nobody is held back because of where they come from.
“We have recently agreed seven devolution deals worth £4.8bn, giving local leaders extra money and powers to create jobs, boost skills, build homes and improve local transport.
“Our National Living Wage is also helping to deliver the fastest pay rise in 20 years for the lowest paid across our country.”
