Prepare for a pay squeeze as big as in the 1810sby Conor D'Arcy / November 24, 2016 / Leave a comment
The early 21st century doesn’t have too much in common—thankfully—with the war-torn early 19th century. (Although a global superpower was headed by a man of dubious temperament.) But yesterday’s Autumn Statement and the first official projections of the impact of Brexit on the UK’s economy added an unfortunate new connection. If the OBR is right, decade-on-decade pay growth in 2020 will be on a par with the 1810s in terms of the scale of the squeeze people have experienced.
Real average earnings are now forecast to be £830 a year lower than expected in 2020—thanks to a double whammy of weaker pay rises and higher inflation. Growth of just 1.6 per cent across the entire decade from 2010 to 2020 compares with an increase of 12.7 per cent in the 2000s and over 20 per cent in every other decade since the 1920s.
Given these headwinds, the onus fell on the government to walk the walk on helping “just about managing” families after weeks of talking the talk on supporting them. To be fair, the Chancellor did announce a handful of measures that will benefit some of the so-called JAMs: a 30p rise in the National Living Wage, banning letting agent fees and an extra 40,000 affordable homes. All welcome if not earth-shattering.
But the real test of the government’s rhetoric was how Philip Hammond would treat cuts to benefits bequeathed to him by his predecessor. Changes to Universal Credit announced in the Summer Budget in 2015 promised to hit the incomes of typical just managing families to the tune of £1,500 by the end of the parliament. That test was failed.
The 2 per cent reduction in the taper rate—how quickly benefits are taken away as families earn more—was a step in the right direction. But it was small fry. Together, when set against all other policy changes announced since the 2015 election, the Autumn Statement will only undo 7 per cent of the hit from benefit cuts to the bottom half of households.
You could argue that the Chancellor’s hands were tied in reversing these cuts by the…