UK heads for worst decade of earnings growth in 210 years, warns think tank
BRITAIN is on course for the worst decade for pay growth for 210 years – that’s the warning from one of the UK’s most respected think tanks.
The Resolution Foundation is ringing the alarm bell a day after Chancellor Philip Hammond delivered his first Budget.
It warns that this Parliament is shaping up to be worse for the poorest third of households than the four years following the financial crisis. This “real inequity” is driven by a “combination of low pay growth and regressive benefit cuts”.
Both public and family finances will be squeezed, it fears, “well into the 2020s”.
The foundation warns the Chancellor that now is “not the time” to add to the pressure on low- and middle-income working families with these “substantial benefit cuts”.
According to its analysis, there are good reasons why you may be feeling worse off. Real earnings are set to fall later this year and are only predicted to return to their pre-crisis peak in late 2022.
That would be “15 years after the pay squeeze began”, meaning that we will have lived through “the worst decade for pay growth for 210 years”.
This is how it predicts you could be affected:
“A single person working full-time on the minimum wage – earning £13,150 – will be £380 worse off by 2020.”
“A dual-earning couple with two kids and combined earnings of £29,020 will be £360 a year worse off by 2020.”
The foundation acknowledges that Mr Hammond cannot single-handedly tackle all the causes of the pay squeeze, but it urges him to act where he can.
It states: “While the Chancellor cannot simply wish lower inflation or higher productivity into being, for low- and middle-income families the pay squeeze is compounded by his failure to reverse large and highly regressive benefit cuts due in coming years. These will see a single earning couple with two kids lose £1,630 in 2020-21, while larger families will lose much more.”
Urging Mr Hammond to change course for the sake of hard-hit families, the foundation encourages him to see the upcoming autumn Budget as a “chance to think again”.
The foundation’s report underscores just how slow the recovery has been and how much work remains to be done to tackle the fundamental weaknesses in the economy. Mr Hammond is not on course to eliminate the deficit until 2025-26 – “a full 15 years after George Osborne started to raise taxes and cut spending”.
If the forecasts for where the economy will be by 2022 are correct, “GDP per capita will have grown by just 7.9% in nearly 14 years since the start of the 2008 recession, compared to 29% at the same stage after the 1980 recession and 33% after the start of the 1990 downturn”.
At least one aspect of the foundation’s analysis will bring Mr Hammond some comfort.
It backs his highly controversial changes to National Insurance contributions, despite repeated statements in the Conservative 2015 manifesto that increases would not take place.
Far from condemning the changes, the foundation describes these as “highly progressive”.
It argues he was right to announce a two percentage point increase in the Class 4 National Insurance paid by the self-employed to coincide
with the abolition of flat rate Class 2 National Insurance, stating: “This is a welcome and progressive change that will mean the bottom 54% of selfemployed earners pay less National Insurance or none at all. Those earning over £16,250 will pay more, with anyone earning over £50,000 paying a little over £600 more tax each year.
“At a household level, these National Insurance changes are highly progressive, with the majority of revenue raised coming from the top 10% of households.”
The Treasury argues that the Office for Budget Responsibility predicts that average earnings will rise and that living standards are forecast to be 2% higher than they were in 2016. It is encouraged that employment is at a record high and workers are supported by a National Living Wage rising to £7.50 and an increase in the personal allowance to £12,500 by end of this Parliament.
The richest 1% of earners now pay 27% of all income tax receipts, the Treasury maintains, with the lowestincome households receiving more than £4 in public spending for every £1 they pay in tax. In contrast, the highest-earning households contribute more than £5 in tax for every £1 they receive through public spending.
However, Plaid Cymru Treasury spokesman Jonathan Edwards said it was a “disgrace” that the Government did not change its economic strategy.
He said: “These figures underline our criticism of the Chancellor’s Budget to create a high-tax, low-wage economy. It shows the real, genuine impact that Westminster’s economic policy is having on people’s livelihoods.
“Ordinary people will be £12,000 poorer by 2020 than they would reasonably have expected to be before austerity... It is an absolute disgrace that Westminster continues to allow this failed economic policy to continue.”
Shadow Welsh Secretary Christina Rees said: “This Resolution Foundation report shows once again that the Chancellor’s spring Budget was a missed opportunity to address the problems created by seven years of Tory failure.
“Real pay is still lower than before the crash and too many jobs are now insecure, with the National Living Wage being revised down yet again in 2020. It is forecast not to hit the £9 promised by the Tories, let alone match Labour’s plan for a £10 an hour Real Living Wage.
“Six million people earn less than the living wage and four million children are in poverty – two-thirds of them in households in which at least one parent works uncertain hours.”