Since 2008, poorest have lost most

Submitted by AWL on 27 January, 2015 - 5:08 Author: Matt Cooper

According to the government, economic data published this month show ordinary people have begun to benefit from economic growth. Really?

A 1.8% annual growth in wages was real growth, but only because of low inflation, which stands at 0.5% on the government’s preferred CPI measure. That does little to counteract the fall in real wages since 2008, and the figures may over-estimate growth in wages. As the Resolution Foundation has pointed out, government figures exclude 4.5 million self employed people who, on average, have seen their wages squeezed 20-30% more than other sectors of the workforce since 2008.

The structure of the jobs market in the UK adds to a general picture of downward pressure on pay. An Oxford academic, Craig Holmes, has shown that between 1996 and 2008 high-skilled jobs in Britain declined, middle-skill jobs disappeared and low skill jobs boomed. There is every reason to believe this process has accelerated since 2008, so that ever more people are stuck in low-skill jobs. Holmes’s research is about skill, not pay, but it can be assumed that low-skill jobs are also low paid.

It is low-skilled workers along with people reliant on benefits who are suffering most from the government’s austerity policies. New research from the Institute for Fiscal Studies (IFS) looks at the groups which have lost or gained most from the changes to tax and benefits since 2010. (Note, these impacts are additional to falls in wage income.)

If pensioners are excluded (the “triple lock” on pensions has meant that most have neither gained nor lost through tax and benefit changes) the picture is roughly as follows.

• The top ten per cent of income earners have lost around 4% of their income due to changes in tax bands, national insurance and pension relief rules.

• Of working-age families, the poorest 10% lost the most — 6% of their income. All households with children have lost out but those in the bottom half of incomes have lost most — between 3% and 6%.

• Households without children who do not receive out-of-work or in-work benefits have gained a little.

• Only those households with higher incomes have gained. The band of people who constitute the richest 40%, but excluding the top 10% (the seventh to ninth deciles) have, overall, not had their income affected by the changes; those without children gaining a little, and those with children losing a little.

This has reversed the changes made in incomes via tax and (especially) benefits by the Labour governments after 1997. That saw some moderate increases in income in the poorest third of households, although not enough to stem increasing inequality. Since 2010, anyone who receives benefits has lost out, the greatest losses affecting those who are most reliant on benefits.

People with children have lost more, as have those with no work, those living in areas with high rents and those households containing someone with a disability.

The Conservatives’ proposals for further cuts in benefits after 2015 will continue this process.

Sources

• James Browne and William Elming, The Effect of the Coalition’s Tax and Benefit Changes on Household Incomes and Work Incentives (Institute for Fiscal Studies, 2015).

ONS, Labour Market Statistics, January 2015

• Laura Gardiner, “How the exclusion of the self-employed might obscure the 2015 earnings recovery”

• Craig Holmes, Why is the Decline of Routine Jobs Across Europe so Uneven?, SKOPE and University of Oxford, December 17, 2014

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