Not much of an economic recovery

Submitted by AWL on 17 March, 2015 - 4:50 Author: Rhodri Evans

According to the Tories, pay is now, at last, inching ahead of inflation again.

Probably not even that is true, on average. Analysis by the Resolution Foundation found that the median (middling) increase in real pay (pay compared to price inflation) in 2014 was zero, after being negative ever since 2010.

The conservative Institute for Fiscal Studies reckons average real income, adjusted for household composition, at £461 in 2014-5 compared to £473 in 2009-10.

Official statistics show the net rate of profit for manufacturing companies in late 2013 as the highest since 2002, and for service companies the highest since 1997.

The real earnings of chief executives of the top 100 companies have gone up 26% since 2010, or by £700,000 a year on average.

University bosses’ packages have risen recently to an average of £260,000, and some get more than £400,000 a year.

Meanwhile, between 2008 and 2014, consumption per head of basics (food, fuel, etc.) went down 3.8%. In other recent economic downturns in relatively-rich Britain, it went down much less — people cut back mostly on less-basic spending — and recovered quickly.

The luxury-goods trade of firms like LVMH and Burberry sagged in the first gales of the 2008 crisis, but has recovered nicely since.

Despite that, the IFS reckons that overall, changes in real incomes between 2007-8 and 2014-5 look similar across most of the income distribution. In other words, inequality has not risen overall.

That result seems to come from two factors. As is typical in the first fevers of any capitalist crisis, the very richest did lose more, proportionately, at first, since they had further to fall. Some of them lost fortunes. A swathe of high-paid jobs disappeared. The rest of us, as long as we still had jobs, were set back less. Until the Tory-led government took office in mid-2010, benefits rose a bit more than pay, helping the worse-off.

Also, the modestly well-off, as distinct from the top bosses, have had their pay frozen about as much as everyone else’s — and the very top incomes often elude statistical summaries.

Incomes have been squeezed more in London and the South East, where they were on average higher, than in poorer areas.

There is no doubt, however, about some other inequitable changes.

If pensioners are excluded, then the impact of tax and benefit changes has been as follows:

• The top ten per cent of income earners have lost around 4% through 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.

• Disabled people have lost out most.

The young have lost out much more than older people. The IFS’s calculated medians show, between 2007-8 and 2014-5, an increase of 1.8% for over-60s and a drop of 7.6% for people aged 22-30. Other calculations show even bigger losses for young workers. Older people vote more than younger people do, so the Tories are more inhibited about cuts which hit older people.

That shift blocks social mobility, too — the availability of paths for individuals to move from poor backgrounds to become well-off, within an unequal structure — since it means that the 22-30 year olds who get (even modest) economic help from their families will be able to pay for housing where jobs are available, take up internships, and so on, and crowd out the young people with no help.

Oddly, on Resolution Foundation figures, men’s median real pay has fallen more in 2009 to 2014, 10.7%, than women’s, 7.4%.

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