According to the Office of Budget Responsibility, real wages will be rising from 2013-14 onwards. For the current financial year they forecast a 3.9% increase in wages and salaries, compared to a 2.7% rise in the CPI inflation measure and a 3.2% RPI increase. In the next few years they also anticipate a useful positive gap between wage growth and price rises.
As Alastair Heath has recently pointed out, there has been no transfer of income from wages to company profits. The squeeze has come from higher taxes on employment, so government has been the “winner” and people on wages and salaries the losers.
Maybe the Labour party does not believe these forecasts. Or maybe they just needed to say something different when the economy started to grow, disproving their pessimistic past forecasts about the impossibility of recovery. They lighted on the continuing squeeze on living standards that had been at its most intense during the Great recession in 2007-9. It may just be a short term campaign, which they will end as wages rise and real incomes go up. The problem for them is that once again their forecasts of gloom will look poor if the OBR is correct and real wages do now start to rise.
The government should not be complacent. People want a recovery. They are more inclined to trust the government than the opposition on the big arguments about debt and deficits. They agree with the Coalition approach that reform is needed to make work pay, and action has to be taken to stop debt spiralling out of control. They also understandably want the squeeze on individuals and families to come to an end. If work is to be worthwhile, it is easier to accept the work discipline if there is a good prospect of earning more and being able to spend more next year than this.
Quantitative easing and ultra low interest rates have favoured borrowers at the expense of savers. They have helped the highly leveraged company, not the strongly financed group. They have tended to help the young where they borrow and hit the old where they have deposits, help the spender and hinder the saver. The government needs to show how it is going to balance things a bit more. The savers deserve some reward as prudence should not be a crime. The hard working families the governemnt likes to talk about want a vision of how they can participate fully in the wealth of the nation and the growth of the economy.
Ministers should dust down ideas for wider ownership. As the economy grows so more profit will be made and more assets will go up in value. This needs to be a process which enriches the many, not just the few. I will look at more ideas in future blogs on how this can come to pass.