What the Autumn Statement should sayby Laura Gardiner / November 15, 2016 / Leave a comment
Theresa May has identified the fortunes of “just about managing” working families as her priority in post-Brexit Britain. A new government’s rhetoric precedes real outcomes against which it can be judged. But from one point of view, May’s talk about the low-paid looks well timed. Employment remains on an upward march, and after the longest squeeze in living memory, just before the referendum pay was finally growing strongly in real terms. Low inflation helped and, crucially, so too did the introduction of the National Living Wage—a new higher minimum wage for those aged 25 and over. This bold step meant that the smallest pay packets grew more than twice as quickly as those of typical earners at the start of this year, a pattern we might expect to continue as the National Living Wage is set to rise rapidly in the coming years too. All this sounds like music to the ears of the “just managing.”
A broader view, however, suggests that the current parliament will not be at all kind to this group: 2016 represents a blip, not a trend. This is because of two headwinds inherited by May. The first is the economic outlook, which forecasters suggest has worsened since the Brexit vote. A rise in inflation looks like a certainty following sterling’s fall. Other outcomes are less certain, but the consensus view has been to pencil unemployment up, and wage growth down, as a result of the referendum. This sounds like a mix that might just push the “just managing” over the edge.
The second headwind is £12bn of welfare cuts, introduced after last year’s election, but still to truly bite. These cuts are heavily concentrated on working households in the poorer half of society. They more than offset the welcome National Living Wage, which helps individual low-earners living in richer as well as poor households, and income tax cuts, which largely benefit the better-off.
Together these two headwinds—one economically-determined, one policy-induced—imply living standards will fall for the bottom two-fifths of households over this parliament. There is, surely, no way that could be stomached by a government claiming to champion their cause. So what to do?
In time, the economic backdrop—the first headwind—may respond to the Brexit deal, and any meat put on…