UK workers feel pain of years of falling wages

August 6, 2013 12:01 am

By Jim Pickard and Elizabeth Rigby
Real wages have fallen in 36 of the 37 months since David Cameron became prime minister, according to new data. The figures suggest the average worker will have lost the equivalent of £6,660 in that period.
Labour unveiled the data on Monday in an early attempt to draw a battle line in the 2015 general election campaign, with the cost of living expected to be a key area of debate.

“Cameron likes to talk about the global race but there has been a race to the bottom when it comes to wages,” said Chris Leslie, shadow Treasury minister. “Workers are, on average, earning today the same as they made in 2001.”
Some ministers are privately hopeful about the prospects of economic recovery after recent positive data, including Monday’s encouraging services PMI figures.
Yet households are likely to remain under pressure with more public spending cuts, or tax rises, expected to deal with more than £1tn of public debt.
Against that backdrop, few expect the issue of living standards to suddenly disappear as an electoral issue even if gross domestic product rises.
David Cameron has called the cost of living “the most important issue to families up and down the country”.
Ed Miliband, Labour leader, has promised that May 2015 will be a “living standards election”.
As such, the search is on for all the political parties to find ways to help consumers at no cost to taxpayers: for example by forcing companies to improve their transparency and provide cheaper services.
Jo Swinson, business minister, will on Tuesday announce plans to give online shoppers more time to return goods, while also giving the public greater protection from rogue traders.
George Osborne, chancellor, said the Treasury’s proposed childcare package would “help those on tight family budgets” as it launched a consultation on plans to offer tax breaks worth up to £1,200 per child to families where both parents work.
But the Resolution Foundation, a think-tank, said only a “tiny fraction” of the new money would go to the lowest paid. “It’s crucial that the government adapts its scheme to help the poorest working families,” Resolution said.
Labour has drawn up rival policies designed to give consumers better value for money, including “strict caps” on rail fares, forcing energy companies to put all over-75s on their cheapest tariff and capping interest rates charged by payday lenders.
The reason the cost of living is high is because Labour crashed the economy
– Mark Hunter, Liberal Democrat MPr
The party said on Monday that the UK had seen the biggest fall in workers’ income in any country in the Group of Seven leading economies since the general election. A YouGov poll for The Times newspaper on Monday found that 58 per cent of workers believed their pay would fall in real terms over the next year.
Few of Labour’s policies, however, would have any direct impact on the level of wages paid by the private sector – with Mr Miliband only tentatively supporting the idea of a higher “living wage”.
Mark Hunter, a Liberal Democrat MP, said the coalition had helped workers by raising the threshold where they started paying income tax.
“The reason the cost of living is high is because Labour crashed the economy,” he said. “For them to criticise the coalition for cleaning up their mess is utterly hypocritical.”
The issue of pay and workplace rights has come into sharp focus with the revelation that 1m British workers are on “zero-hours contracts”, which often provide no holiday or sick pay.
Vince Cable, Lib Dem business secretary, said he would consider changing the rules for workers who were only allowed to work for one employer. “We could move forward with recommendations to consult on legislation,” he suggested.
Chuka Umunna, shadow business secretary, will hold a summit this month to seek to establish more facts about the trend for zero-hours working. “We want to take an evidence-based approach to this, get people around the table, both employers and those on these contracts,” Mr Leslie said.
“In some circumstances there may be justification for this. But when you think of the pressure people are under, how can you plan ahead for your family if you don’t know what income you’ll get from week to week?”
 . . . 
Policy battlegrounds
The coalition is introducing new rules in September to make it easier for customers to change banks in an attempt to boost competition. Labour has promised action to cap the cost of credit, especially in relation to payday lenders.

The £130bn Help to Buy scheme will, from next year, underwrite the mortgages of homebuyers with small deposits. Labour would borrow billions to build new social housing and tackle abuses in the private rental market by introducing a national register of landlords.

Fuel duty has been frozen for two years at a cost of £6bn. Ministers want to spur competition by forcing service stations to display fuel prices on motorway signs. A rise in train fares of inflation plus 3 per cent was reduced to RPI plus 1 per cent. Labour would apply “strict caps” to fare rises and backs a new legal right for passengers to be offered the cheapest ticket.

Labour has highlighted a fall in real wages and the rise of insecure zero hours contracts. The opposition has promoted the living wage, currently paid by some employers in London, but has stopped short of committing to introduce it nationally. Ministers say the minimum wage has kept going up – it is now £6.19 – and an increase in the income tax threshold to £10,000 will ease pressure on low earners.

David Cameron promised to force energy companies to put all customers on their lowest tariff. Under the guidance of regulator Ofgem the market is being simplified, albeit to a lesser extent than the prime minister proposed. Labour would abolish Ofgem and create a “tough new energy watchdog” to pass on price cuts when the cost of wholesale energy falls.
Copyright The Financial Times Limited 2013.

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