13 August 2014

Falling wages show why the Tories aren’t benefiting from the return of growth

GDP may be rising, but wage growth is at its lowest level on record. There is no recovery for most voters.

(Photo By George Osborne arrives at Lancaster House for a UK/China Financial Forum in London on June 18, 2014. Photograph: Getty Images.)

When wages briefly drew level with inflation earlier this year, some claimed that the “cost-of-living-crisis” (in Labour’s phrase) was over. The Tories argued that wages were a “lagging indicator” and that higher output would translate into higher salaries. As George Osborne remarked after the publication of the GDP figures in October 2013, “If Britain is growing then the finances of Britain’s families will start to grow.”

But today’s earnings stats show that the reverse, dismayingly, is true. Total pay fell in nominal terms by 0.2 per cent between April and June, compared to inflation of 1.9 per cent. The fall is partly accounted for by last April’s deferral of bonuses to benefit from the abolition of the 50p tax rate, which artificially boosted wage growth. But even if bonuses are stripped out, regular pay rose by just 0.6 per cent (1.3 per cent below inflation), the lowest figure since comparable records began in 2001 (although it is worth noting, as Duncan Weldon does, that real wages are not the same thing as living standards).

The economic upside is the jobs boom. Unemployment fell by 132,000 to 2.08 million (6.4 per cent), the lowest level since the final quarter of 2008, while employment rose by 167,000 to 30.6 million (73.0 per cent), within touching distance of the record figure of 73.1 per cent achieved in February 2005.

But as Labour has long warned, far too many are in trapped in low-wage, low-skill jobs that don’t pay them enough to achieve an adequate standard of living. Today’s figures don’t include the self-employed (responsible for almost half of the rise in employment over the last year) whose earnings have fallen at an even faster rate.

On a political level, the figures help explain why the Tories have yet to receive the polling dividend that many expected from the recovery. While GDP is rising, wages are not, leaving many feeling no better off. Worryingly for the Conservatives, private polling by Labour shows that as growth accelerates, voters have become more concerned with issues such as living standards (on which Labour leads) and less concerned with issues such as the deficit (on which the Tories lead). With just nine months to go until the election, Osborne is running out of time to translate economic gains into political ones.