John Humphrys asks: is the 'cost of living crisis' alleviating?
For the first time in four years average earnings are rising faster than inflation. In other words the real value of what we are paid is no longer actually falling. That, at least, is what the headline figures published this week seem to show. But do they give the full picture? And does it mean that the ‘cost of living crisis’, that Labour is so keen to make the main focus of next year’s general election campaign, is becoming a thing of the past?
Wednesday’s latest figures from the Office for National Statistics show that average earnings rose at an annual rate of 1.7% between December and February. The most recent figure for inflation is 1.6%. So, to put it in the simplest terms, for the first time since 2010 pay is at last going up faster than prices. Together with other figures showing unemployment falling below 7% for the first time in ages and the number of people in employment at record levels, this is all very welcome news not only for those who have felt squeezed but also for the government. For obvious reasons, it is desperately keen not to face the electorate next year with living standards still falling.
So, unsurprisingly, government ministers were quick to celebrate the news. But they were being a touch cautious in what they claimed. It was presented as a corner being turned rather than a problem that has been dealt with: all done and dusted. A closer look at the statistics explains why.
The figure of 1.7% for the average rise in earnings includes bonuses. But 40% of bonuses are paid to only 4% of workers (and we know where most of them live). So most workers are getting a much less good deal. If you strip out bonuses from the calculation, average earnings rose over the period by only 1.4% and THAT is less than the rate of inflation. Most people, therefore, are still being squeezed.
There’s also a difference between the public and private sectors. Average earnings (including bonuses) rose by 2% in the private sector and by only 0.9% in the public sector, squeezed by the tight limits on public sector pay.
But the real reason why no one can yet be triumphalist about rising living standards is that there is such a lot of ground to catch up. The ONS calculates that since July 2008 (roughly the time the financial crisis put an end to the long boom), prices have increased by 16.9% whereas average wages have gone up by only 8.6%. That amounts to what the independent economic consultancy, Capital Economics, calls the ‘colossal’ cut of around 10% in real pay, the biggest such fall over a five-year period since the 1920s. Another independent body, the Office for Budget Responsibility, reckons it will be 2018 at the earliest before real incomes are back to where they were in 2009/10. Some think we’ll have to wait till the next decade.
It’s not surprising, therefore, that Labour’s shadow chancellor, Ed Balls, tries to rubbish the notion that the latest figures have shot his fox. He argues that it is a dead certainty that most people will be absolutely worse off at the end of this parliament than they were at the beginning and he claims this is the first time this will have happened since relevant records were first kept in the 1870s. He says that on average families are already £1600 a year worse off than they were back in 2010 when the coalition came to power.
The government disputes this. It says his figure does not take into account tax changes, notably the substantial rise in the basic income tax threshold below which people don’t pay any income tax at all. Labour retorts that other tax changes, especially to tax credits and VAT, have increased not lessened the squeeze on living standards, especially to people with children.
The skirmishes over statistics are certain to intensify over the next year. What no one denies, though, is that averages can conceal as much as they reveal. In particular they cover up the way changes in both real incomes and taxes are distributed and few would deny that it is the poorest 20% of the population that has suffered most. That’s because a greater proportion of their income has to be devoted to those things that have risen most in price: food and rent.
The case that the poorest are suffering the most would seem to be endorsed by other evidence that came out this week. Five hundred clergymen, including the Archbishop of Wales, wrote to the government protesting at the ‘terrible’ fact that the use of food banks seems to be soaring. Figures issued by the Trussell Trust, which organises emergency food aid through food banks, showed a huge increase in the provision of three-day emergency food parcels, from 347,000 in 2012 to 913,000 last year.
On the face of it, these figures would appear to be a simple reflection of the increased poverty caused by the continuing fall in real wages. But here, as with the ONS figures on average earnings, a little more scrutiny produces a more complex picture.
In the first place, the increase in the demand for food parcels does not simply match an increase in the number of people asking for them. A third of the total number of food parcels is accounted for by the same people coming back for repeat visits. That still leaves a substantial 51% increase in the number of people asking for them in the first place, though. But this too may be explained not so much by there being more people in need of the food parcels but by there being more food banks and greater public awareness that they exist.
The Trust itself reckons that only about 20% of demand at the food banks is due to low incomes. It believes that a much bigger proportion is explained by delays in people receiving their benefits, a problem enough in itself but not the same as simply not having enough money to pay for food.
So the picture on both rising real earnings and on the increase in the use of food banks as a proxy for increased poverty may not be as simple as they seem. That will leave plenty of scope for the political battle over the cost of living to be waged over the next year.
- What’s your take on it?
- Do you feel that your living standards are continuing to fall or stagnate, or do you feel they are picking up?
- How do you think it is for other people?
- Who do you think is suffering worst and who least from the varying changes in incomes and inflation?
- Do you share the view of the five hundred clergymen that the new figures on the use of food banks are ‘terrible’?
- And in deciding how you vote next year, will you be more swayed by how much your living standards have been squeezed over the last four years or by how you see the prospects in the next four?
