While Libya takes the spotlight, the British economy wheezes in the dark. Monday’s survey from Markit showed household finances worsening at their fastest rate since early 2009. Yesterday, a new poll from the Resolution Foundation confirmed that picture. Half of all low-to-middle income households say they’re running out of cash each month; only one in four are making regular savings. Many households now face the unenviable choice between cutting their spending still further and increasing their borrowing. Needless to say, at the national level, neither option translates into a promising path to recovery.
In the coming months, then, we’re likely to hear more about what the coalition could do to relieve the squeeze on household incomes. As Gavin Kelly and I argued at the weekend, the chances are this debate will turn first to tax cuts, ever the first instinct of politicians. Longer term, though, we need a serious debate in Britain about actions the government and private sector can take to raise wages. From the role of legislation such as the minimum wage to other ways to encourage the voluntary adoption of better pay, wages rarely feature in debates about the present squeeze on disposable income. That’s entirely understandable in the context of an economic slump. But with government finances strained, and big real increases in tax credits unlikely, they’ll need to play a more important role in future.
The truth is, having a fair and informed national discussion in this area won’t be easy. Just as the left rarely does itself justice in debates about tax—often falling into tired positions, and overstating the role of tax in redistribution—the right doesn’t equip itself well in debates about raising wages. Too many trot out the standard line that any government action on pay increases unemployment; too few look at the evidence.
In doing so, this talk by Nobel Laureate Robert Solow, is not a bad place to start. It’s based on the findings from a major international research project on low wages in the wealthy world. The project found, first, that some economies have much higher rates of low-wage work than others; in the US, one in four workers is in a low paid job and in the UK one in…