Action needed now on falling incomes
HETHER you call them JAMs or OWFs (Ordinary Working Families), one thing is certain: the future does not look good for those “just about managing”. Research by the Institute for Fiscal Studies, based on forecasts by the Office for Budget Responsibility, indicates there will be no growth in median household income for the next two years.
In five years, it will be just four per cent higher, 18 per cent lower than would reasonably have been expected back in 2007-08, based on an annual growth projection of two per cent. That difference is equivalent, says the IFS, to more than £5,000 on a year’s salary, a sizeable sum by any standards.
Bearing in mind these are projections – things could get better or, heaven forfend, worse – we are looking at the worst slowdown in income growth for 60 years. Combined with planned benefit cuts, inequality is set to worsen. The poorest 15 per cent of the population will have lower incomes by 2021-22. Child poverty will rise from 27.5 per cent in 2014-17 to around 30 per cent in five years.
Behind these dry figures, in day-to-day reality, this historically weak growth drives down living standards, particularly for low-income households with children. In her first speech as Prime Minister, Theresa May highlighted the plight of those who “just about manage”, giving rise to the acronym JAMs. Calculated by independent Resolution Foundation to cover six million working households and ten million adults, this inauspicious designation was deemed to apply to those living on the edge, vulnerable to even small changes in circumstance.
Labour has pointed out that this is not a demographic; it is real people. Even Mrs May reportedly became irritated by civil servants using the acronym, as it was disrespectful of poorer workers, though it might be argued this is traditionally the characteristic of a Conservative economy. The Prime Minister instructed civil servants to speak only of “ordinary working families”, which the civil servants duly then labelled OWFs.
Risible acronyms aside, economic observers have speculated increased receipts from self-assessment and capital gains tax might free up funds to ease the plight of lower earners in next week’s Spring Budget. But Treasury aides reportedly insisted there would be no “spending extravaganza”, with most major changes reserved for the Autumn Budget (as of 2018, the one main budget of the year).
Last month, the annual UK consumer price index revealed a continuing surge in inflation, which most economic observers believe is driven by the pound’s tumble following the Brexit vote. Companies’ costs increase, which puts up prices, while pay rises to keep up with these are a thing of the past – because firms have to keep down costs. And so round the not so merry roundabout goes.
With prices rising and pay growth stagnating, many more people could find themselves becoming – forgive us – JAMs tomorrow. Not unless something is done today, or at least next Wednesday, when the Chancellor should use his budget to ease the lot of those struggling to manage, rather than waiting until the Autumn.