Westminster Watch

Written By: Ian Hernon
Published: March 11, 2017 Last modified: March 11, 2017

Behind the bluff and bluster of Philip Hammond’s Budget, one report illus­trated the reality of life not for the really poor, nor for the super-rich who have benefited the most from this and previous packages, but for the ‘hard-working’ majority.

Analysis, using House of Common’s Library endorsed modelling, showed that average real earnings are set to fall by just under £1,100 a year, or £21 a week, due to rising inflation and lower wage growth. Inflation has been rising since last summer, and this time last year, the Office of Budget Responsibility was forecasting real average earnings growth of 9 per cent between 2015 and 2020 (average earnings adjusted for CPI inflation). However, at the 2016 Autumn Statement this was revised down to growth of 5 per cent between 2015 and 2020.

Budget 2016 was forecasting that real average earnings would be almost £2,500 higher in 2020 than in 2015. However, at the 2016 Autumn Statement this was revised down to £1,400. This is a difference of just under £1,100 a year, or £21 a week.

That comes on the back of Institute of Fiscal Studies analysis last year which showed that the “outlook for living standards has deteriorated rather sharply”, between Budget 2016 and Autumn Statement 2016, describing the prospects for real earnings growth as “dreadful”. The Resolution Foundation has also said that the “outlook for living standards in 21st century Britain does not look promising” and that “weak and regressive nature of income growth in the years ahead should concern us all”.

The slump in living standards overseen by this Tory government is the worst this country has experienced since the Industrial Revolution. The Chancellor may try and boast about rising GDP, but that hasn’t turned into real improvements in people’s lives. Average  hourly pay remains over 10% below its level before the crash. And cuts to public services have now placed them, as the independent Institute for Government has said, close to outright collapse.

The record on living standards is the worst of any leading economy. Only Greece has seen a bigger fall in real pay. Britain his the only large developed economy in which wages fell even as economic growth returned after the crash. And now rising inflation as the government mishandles Brexit is devaluing people’s wages further. Yet the government has rowed back on its promised National Living Wage level, and is continuing to pursue cuts in in-work benefits.

Shadow Chancellor John McDonnell said: “Living standards are being squeezed and working people are being hit hard. The truth is that Theresa May has failed working people; with a lower National Living Wage than promised just 12 months ago and massive cuts to Universal Credit still in the pipeline.” It is hard to disagree with him.

Likewise, Shadow Education Secretary Angela Rayner’s view of the Chancellor’s miserly cash injection for skills. She said: “Any new funding for vocational education is welcome but it is on this Chancellor’s watch that colleges are facing closure due to soaring deficits. Much of the Chancellor’s plans have already been announced elsewhere, and the T-Levels simply formalise the 15 technical education routes that already exist. The idea that this will reverse years of Tory neglect is laughable. It is very much the minimum needed to address the new skills challenges of Brexit.”

The run-up and aftermath of Hammond’s Budget have shown Labour’s front benches upping their game. About time. But the underlying reality is that low investment over many decades has led to a low-productivity, low-wage economy. Insecure and poorly-paid work dominates new job creation. That, in turn, means that the tax base needed to secure public services is less stable. Tax giveaways to the super-rich and giant corporations have further undermined the tax base.

The Conservatives will soon have added three quarters of a trillion pounds to the national debt since they arrived in office. At the same time, they will have imposed the first spending cuts on schools for 40 years. And delivered an NHS in a state of profound crisis.

Local authorities in particular have had to cope with the most extraordinarily sharp funding cuts; they will not sustain a further round of spending cuts. But that is exactly what Hammond is delivering.

About Ian Hernon

Ian Hernon is Deputy Editor of Tribune