Let me give you some good news—so good you might struggle to believe it. The pay gap in Britain has been narrowing, with low hourly wages almost eliminated. Despite current wobbles, on a long view our employment rate is still very high by historical standards, and the significant jobs growth of the last generation has worked to the concentrated benefit of the poorer half of families. They fully account for the significant rise in employment witnessed across the UK.
These are all findings from Unsung Britain, the new book from the Resolution Foundation*, on which I’ve been holding the pen as principal editor. It is not only gloomsterism that makes it hard to swallow these happy truths. They are hard to digest because—as the book also demonstrates—the last 20 years have been pretty dire. Whereas disposable incomes of poorer working-age Britons doubled over the 40 years up to 2004/5, progress since then has decelerated to the point where a further doubling would take—at least—135 years to unfold. The typical experience of Baby Boomers, and, initially, Gen Xers was of getting a bit more comfortable while advancing through adulthood; an expectation that, at the end of each decade, there would be more holidays and meals out at than at the start. For later generations, by contrast, adulthood is less defined by palpable progress than a seemingly endless squeeze.
The big riddle running through the book is how on Earth these two things—the positive news on jobs and the pay gap; stagnation in overall living standards—can be true at the same time. After all, not so long ago it was conventional wisdom on the centre-left and beyond that the root cause of British inequality, which has been markedly high ever since the 1980s, was power imbalances in the labour market.
Way back in 2001, the economist David Soskice and the political scientist Peter Hall came together to edit the influential book Varieties of Capitalism, which highlighted contrasts in the political economy of the liberal market orders of the Anglo-Saxon world and the more “coordinated” continental economies. It included a chapter by Stewart Wood, regarding the differing employment regimes of Britain and Germany. Wood later became a key plank in the team of Ed Miliband, who was leader of the opposition from 2010. The New Labour prescription before the financial crisis could be caricatured as letting the market rip, and then harnessing some of the profits via tax to support the vulnerable through public services and tax credits. The feeling in the Miliband camp was that this mix of markets and redistribution had not done enough to level the playing field of life. In the run-up to the general election of 2015, they embraced a wonky buzzword: “predistribution.” They hoped to effect a deeper transformation than Tony Blair had managed by making sure that lowly workers were paid decent wages before taxes and benefits got involved.
In the event, Labour crashed and burned that year, and yet—in an unexpected plot twist—“predistribution” lived on. In a summer budget, the re-elected Tory chancellor, George Osborne, sweetened his manifesto commitment to deep welfare cuts with an immediate surge in the minimum wage, and a plan for further rises, to raise the pay floor to 60 per cent of the median wage, and keep it there. During the subsequent decade of political turmoil, the minimum wage actually rose even more steeply than that, especially for many younger workers originally left on far lower rates. Even the full adult rate has ended up rising by a chunky 32 per cent in real terms, compared to a decade ago. Against the traditional benchmark of two-thirds of the median wage, “low pay” has today been almost eliminated. A structural problem that had affected over a fifth of all employees in 2015 has been consigned to the rule-breaking margins. Only around 3 per cent of workers now earn below the minimum wage.
The big public policy decision to raise the pay floor has mechanically ratcheted up the lowest hourly wages relative to the middle. Before it was done, some feared there could be grim side effects if the (equally mechanical) increase to hiring costs caused employers to offer workers fewer hours. It turns out, however, that the gap between the middling and the lower-paid on overall weekly earnings has also now been tumbling for around 15 years. While some lower-paid workers are undoubtedly stuck with shorter shifts than they’d like, this is not a problem that is getting worse in the way that would offset the progress on hourly rates. The new Employment Rights Act should provide further help here by entrenching new rights to more reliable shifts.
The data also dispels any fears that unfairness has simply been pushed up the pay scale by the top racing ahead. The gap in hourly rates between workers nine-tenths of the way up the range and the middle has been closing for the best part of a decade. Over the last few years, even the gap between top and middling weekly earnings has narrowed a bit. One possible factor here could be pay negotiations with progressive features, such as the guarantee of minimum cash increases for all staff, which is worth relatively more to those at the bottom end. The social geographer Danny Dorling drew attention to a fashion for such arrangements in Prospect a few years ago. The new book notes several recent pay claims and deals—covering local government, London Underground and BT—which are worth relatively more to those who start out with less.
It turns out, then, that Britain has recently achieved a measure of “predistribution,” and narrowed the gap on pay. So why is it that the same malcontent mood that was blamed for Brexit continues to course through our unstable politics, with every prime minister seeming fated to end up more disliked than the last? And how come so many social statistics—covering everything from “food insecurity” to arrears on fuel bills—point to such extraordinary hardship?
The first and most obvious answer is the stalling of overall growth. For two decades, productivity has been poor, and average earnings have stagnated. While a rising minimum wage has usefully pushed against this, most workers—even most poorer workers—are not on the minimum wage.
It is, however in combination with all sorts of other trends that the social consequences of stagnant pay have shifted from merely disappointing to outright dangerous. A succession of squeezes, freezes and outright reductions to benefits have combined to cut poorer families’ income from social security by £1,600 a year since 2010. A longer-term trend in the background is the swelling of private wealth relative to national income, the ratio of the two things having roughly doubled since the early 1980s. Seeing as assets are, always and everywhere, more concentrated in a few wealthy hands than incomes, their rising economic importance reduces class mobility and makes day-to-day life feel less fair.
The consequences of asset inflation are especially grim in housing. Back in the mid-1990s, one in three poorer families was buying a house with a mortgage. Today that proportion has roughly halved, tumbling to 17 per cent. The most common tenure for Britons below the middle—covering 29 per cent—is now renting from a private landlord, which on average costs them an extraordinary 43 per cent of total post-tax income. Another very significant proportion (15 per cent) of those who might once have become independent households are today instead stuck living with their parents, sometimes deep into adulthood.
These stay-at-homers will often get away lightly on rent, along with others in poorer Britain—particularly older adults—who bought long ago and now benefit from owning outright. But there is no getting away from the hugely divisive effects of housing. Private tenancies are just so costly that the growing number of families stuck in them are fated to remain squeezed, almost irrespective of earnings. The book documents how someone supporting a family on a far-above average wage of £62,000 can be dragged down deep into the bottom half by paying pretty ordinary rent. And for many younger adults, especially, navigating housing costs throws obstacles in the way of life plans, including their careers, where to live and even whether to have children.
The good news about more jobs with more equal pay is real: things would be far, far worse without that. But, to get living standards moving again, pay needs to be higher as well as more fairly shared. Moreover, families do not live by work alone. For all sorts of reasons—including disability, and looking after children and frail adults—many face serious barriers to working full-time or indeed sometimes working at all. Redistribution through the benefit system is therefore just as crucial as “predistribution” through work, and that has been compromised by austerity cuts. Meanwhile, costs can matter just as much as earnings. Over a generation, housing has steadily become the single biggest problem for many lower-income families, and then—more recently—the rocketing cost of essentials such as energy and food has disproportionately hit the whole of poorer Britain.
In sum, the grave disappointments of our harder-pressed communities have many roots, including a stagnant economy and a broken housing market. Progress on jobs and pay has been important in offsetting at least some of these grim effects. In the end, however, easing the overall squeeze will rely on addressing not just one part of the living standards picture—but every part.
*The Resolution Foundation is part of the Resolution group, which also owns Prospect, but the two operate independently
