Workers’ overall pay has not fallen, insists George Osborne

Courtesy of The Guardian:

George Osborne is to claim that workers’ overall pay has not fallen, despite official figures showing that the wages of middle-income families have dropped by £5,000 over the past five years.

The figures, from the Office for National Statistics, showed a 6.4% drop in the annual wages of median households from £37,900 to £32,600 from 2007-08 and 2011-12.


But in a bid to defuse the ongoing row over living standards, the Treasury has drawn up its own figures, due to be published in Thursday’s autumn statement. They claim that workers’ pay has kept pace with growth if rises in employers’ national insurance and pensions contributions are included. The Treasury will blame the rise in national insurance introduced by Gordon Brown for the relative slowdown in wages – rather than companies siphoning cash into higher profits.

The Treasury presentation is also intended to show that the link between wages and growth has not broken – as Ed Miliband has suggested – and that wages will soon rise as growth continues. That claim is disputed by the ONS report, which suggested the link was breaking even before the recession: “While GDP per person continued to grow at similar rates between 2004-5 and 2007-8, growth of median household income slowed to a fifth of its previous rate in the years immediately before the start of the economic downturn.”

The ONS figures also show the huge disparity between the treatment of pensioners and workers. While the median income for non-retired households fell by 6.4% between 2007-08 and 2011-12, the median income for retired households grew by 5.1%.

Osborne fears voters are not yet responding to the increasing signs of economic growth, but are instead focusing on Labour’s warnings about stalled living standards. Miliband will go on the attack again saying women working full-time have lost almost £2,500 in real terms under the coalition, much more than men.

The Labour leader will say that after inflation, women working full-time have seen their annual earnings fall by £2,471 since 2010 while men’s have fallen by £2,312. Women’s average weekly earnings are £406 while men earn on average £500 a week, £94 more than women.

Miliband will say: “Everyone in work is being hit hard by the cost of living crisis. But women are being particularly badly affected.”

The ONS figures underline the pressure on Osborne to deliver some relief to working families and yet maintain a fiscally neutral autumn statement. Osborne already has to find cash to fund existing pledges on extending free school meals to all three-year-olds from September, a transferable tax allowance for some married couples and a freeze on fuel duty. The pledges together cost £3bn.

Osborne has said he will continue to make difficult decisions in the autumn statement, and he is expected to set out more detail on how his proposed cap on welfare spending would bite in the next parliament. Proposals for new welfare cuts are not expected.

Pubic finances have improved since the budget in March. The average forecast for growth this year is now 1.4%, an increase of 0.5% since the spring.

The Institute for Fiscal Studies has suggested this would cut the deficit by £7bn. But the overall deficit will still be £113bn, which would be the fourth largest UK deficit between the end of the second world war and 2008-09. Furthermore, a deficit of £113bn in 2013–14, while lower than projected in the March budget, would still be substantially higher than the £60bn that Osborne projected for this year at the time of his first budget in June 2010.


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