Sunday 26 March 2017

Sunday, March 26, 2017 Posted by Hari 1 comment Labels: , , , , , , , , , , ,
Posted by Hari on Sunday, March 26, 2017 with 1 comment | Labels: , , , , , , , , , , ,

Almost four decades of widening inequality caused Brexit. Who seriously thinks we’d have voted Brexit if low-end wages had risen in line with growing national wealth? If low income workers had been saving, rather than borrowing or going without? Instead, since 1979, the Tories increased inequality. Worse, Labour failed to reverse it. In fact, it crept up further. Immigration and the EU is getting the blame for that poverty. But neither caused it.

Source: Institute for Fiscal Studies
NOTE: The “Gini coefficient” is an internationally used measure of inequality, where zero corresponds with perfect equality (where everyone has the same income) and 1 corresponds with perfect inequality (where one person has all the income, and everyone else has zero income).

Inequality so what? It means we’ve become a nation of borrowers. Since the 1980s the bottom 50% have actually had to borrow money to cover their living costs. As the graph shows, the poorer you are, the more you had to borrow. And before you shout “If you can’t afford it, don’t buy it!” where do you think that huge chunk of the nation’s high street spending is going to come from, that’s paying your wages?! The "Savings Ratio" in the graph shows what percentage of income different groups (the poorest to the richest) save. A negative Savings Ratio means they are borrowing. 

SOURCE: Resolution Foundation report "Gaining from growth: The final report of the Commission on Living Standards"

So, anyone hoping that Brexit voters will change their mind before the EU plug is pulled must therefore pray that inequality gets better. But Chancellor Philip Hammond’s budget is about to make it worse.

Here’s a graph of how incomes changed in the first four years of the “cataclysmically awful” bank bust (2007/8 to 2011/12), overlaid with how incomes will change thanks to Hammond’s budget (2016/17 to 2021/22).

SOURCE: Resolution Foundation report: “Are we nearly there yet? Spring Budget 2017 and the 15 year squeeze on family and public finances”

The lines show household net income growth (i.e. after including tax and benefits, and housing costs) for all working-age households. The poorest are on the left, the richest on the right. The bank-bust brown line shows everyone’s growth was negative, but the poorest suffered least and the super-rich most. Hammond’s blue line shows the poorest will suffer more than anyone has since 2007/8, while incomes will actually grow for the top 50%, the richer the better.

The graph comes from a report by the Resolution Foundation, who said: “the final four years of the current parliament look like being worse for poorer households than the financial crisis period itself.”

And before you accuse the Resolution Foundation of being too lefty, its boss is David Willetts, the Tory peer and former cabinet minister.

Someone needs to tell Hammond that a recovery needs people to spend money. But Hammond’s plan is to give more money to people who will save it, and less to people who would spend it. It’s not going to work. Duh!

What of UK average earnings as a whole? Overall, has the UK got a pay rise yet, since the bank bust? Paul Johnson is the boss of the Institute for Fiscal Studies. The IFS is one of the few research bodies that politicians don’t argue with, such is the robustness of their work. He said: “On current forecasts average earnings will be no higher in 2022 than they were in 2007. Fifteen years without a pay rise. I’m rather lost for superlatives. This is completely unprecedented.”

Unprecedented. The never-ending stagnation has forced commentators to dive deeper and deeper into their tattered history books as every year passes. Yup, this has been the worst recovery for wages since... Napoleonic times!

SOURCE: Resolution Foundation report: “Are we nearly there yet? Spring Budget 2017 and the 15 year squeeze on family and public finances”

The Resolution Foundation report confirms it: “we are on course for average pay across the decade to 2020 to be lower than the average for the decade before. That would represent the worst decade for real earnings growth in 210 years.”

“But Brexit is not simply about inequality and wages. Get real! Plenty of Brexiters just don’t like immigration and the EU.” Sure, but there aren’t nearly enough of them to win a referendum on their own.

Both Theresa May and Philip Hammond voted Remain. Now they are the PM and Chancellor of Brexit Britain. What are they doing to prove their Brexit credentials? By deepening inequality, they ensure the fervour for Brexit never goes away. I guess that’s kind of pro-Brexit.

1 comment:

  1. Ignoring the fact oversupply of labour from open borders reduces workers bargaining power and wages for lower paid is a big mistake. Plus migration has pushed up rents reducing disposable income.


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