Are living standards improving?

What does it mean for Labour?

The government today, somewhere, has published some figures apparently showing that living standards for many have in fact increased, when take home pay is compared to inflation.  The government is talking about the period April 2012 to April 2013. The analysis has been attacked by Labour as being selective, but there is something here Labour, and tomorrow's Third Place First and Fabian conferences, should recognise.

I've not yet been able to locate the document itself, but there is a good summary of the issues complete with charts on the BBC website here.

The Office for National Statistics has emphasised that real incomes have been falling for years.  Wage growth is below 1% at the moment but inflation, though the inflation rate has fallen, is 2%.  This difference has been apparent for a long time.

For its purposes, the government defines take home pay as gross weekly pay after income tax and national insurance have been paid.  It shows that over the period (one year, ending last April) take home pay has grown above inflation for most income groups.  However, this does not give the complete story.  As Jonathan Portes, of the National Institute of Economic Research is quoted in The Times today, the analysis "takes account of tax cuts but not reductions in child benefit and in work benefits; it also ignores the self-employed, a growing proportion of the certainly doesn't tell us anything about the overall state of household incomes or household finances."

On the standard measure of income inequality, inequality fell after the financial crisis and recession as very high incomes fell but those on lower incomes were supported by the 'automatic stabilisers' as benefits supported those on little or no pay.  However, income inequality is on the rise again as those on the top incomes see big pay increases once more and as the welfare system suffers government cuts.  There will be greater differences due to the cuts in services too.  Housing costs are also on the increase.

So, the government is not telling the whole story - and Labour needs to keep campaigning on this issue.  But while we want to get into government to promote social justice for those most affected by this deep recession, there is a message about the election. As I noted in a recent Progress article, It is highly likely that income available for discretionary spending - ie after immediate essentials such as housing, food, and fuel - is rising for the typical household with a mortgage. Mortgage costs are low.  Food and fuel inflation is not what it was. Compared to last year, and the year before say, the outlook looks better. This is why Labour campaigning (and policy) has to be genuinely One Nation, to have traction in our Third Place seats and especially our marginals.

Furthermore, the only way to boost living standards long term is through increased productivity.  We need to see more policies that will do this, credibly and on a large enough scale. That's what I shall be looking for at the Fabian New Year conference on Saturday.

Stephen Beer, 24/01/2014

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