Why Britain's households got richer - and why they stopped

There are no signs of living standards for families getting any better. Brace yourself.

Before there is any prospect of shaking the economic pessimism that has engulfed the country we need first to alight upon a credible account of how working families will boost their living standards in the years ahead.

At the moment no-one is mapping out this course to a more prosperous future; but more surprising, perhaps, is the fact that we don't really know how it is that households got richer over the recent past. Even though recent history is unlikely to offer a clear guide to the future, it is instructive to understand why low-to-middle income households got richer over the last generation and more -- why it stopped.

Clearly, we do know what happened to headline economic growth over the last forty years, and that this resulted in an unparalleled rising tide of living standards, such that the average British household is twice as prosperous compared to 40 years ago. But we haven't, until now, been able to break down the sources of this rising tide of prosperity at the level of individual households, and tease out how they have changed over time -- for instance, between higher wages (for men and women), more people working, more hours worked, and more generous benefits and tax credits.

Now a landmark report by the IFS for the Resolution Foundation's Commission on Living Standards sets this out in forensic detail. It is a unique compendium of facts and figures about living standards -- and behind the statistics is the tale of economic and social change in late 20th and early 21st century: the rise of women, the relative decline of men and the emergence of tax-credits in low-to-middle income Britain. Any politician or pundit wishing to put the current squeeze on living standards into some meaningful context needs to put it on their Christmas reading-list.

A few findings leap out. Firstly, over the last forty years the great majority (over three quarters) of all the income growth arising from work in low to middle income households came from women. Indeed, women's contribution to total household income more than doubled from just 11 per cent in 1968 to 24 per cent in 2008. Much of this growth is accounted for by higher wages but a large share also comes from big increases in female employment.

Sources of household income growth 1968- 2008/09 - low to middle income households

graph

Over the same period the model of the male breadwinner has taken something of a battering. The contribution of men's work to this same group of households plummeted from 71 per cent of total income to just 40 per cent. As shown in the chart above, this means that income from men's work accounts for only 8 per cent of all the growth in household income in this period, compared to 27 per cent for women. It is well known that male employment plummeted during the 1980s, but male wage growth has also been massively lower for this part of the population -- with any gains here nearly wiped out by falls in employment levels.

Secondly, if we look at the pre-crisis period of economic growth, from 2002 to 2008, a period characterised by steady growth, the evidence is even more striking. Women's employment served to raise household incomes, as did fast-rising tax credits (by an even larger amount); but these gains were almost completely wiped out by losses from male employment income. The net result? The chart below shows that average household income for this group barely rose at all: it went up by a grand total of £143 over 6 years.

Change in income for low to middle income households, 2002/03 - 2008/09, in 2008/09 £s

graph

As with many reports, the conclusions you draw from it will to some degree reflect your starting point. Those favouring redistribution will, of course, point to the enormous importance of tax credits in helping lift family living standards, and be alarmed by the coalition's clear agenda of cutting them back. Whilst those instinctively opposed to using the tax-and-benefit system to mitigate market inequalities will take this report as proof-positive that some of the improvements in the Blair-Brown years were the product of unsustainable state spending.

But wherever you start from, several things jump out of this report as being particularly pressing to the current political debate. Most obviously we clearly have a gender problem -- in fact we have two. Given that income from female work is now so critical for families on low to middle incomes, and typical wages have been flat-lining over recent years, it is a uniquely dumb moment to reduce childcare support which has enabled so many women in low-to-middle income households to combine work and family life. Indeed, declining support for childcare, combined with falling public sector employment (which will affect women more), means that in the short-term female employment rates are likely to fall. Yet we also need to start talking about men. We all know that the UK suffered a strong decline in male employment in the 1980s, but what is less well appreciated is that male employment within the low to middle income group was still falling between 2002 and 2008. We rapidly need to halt this decline.

And -- perhaps this barely needs saying following yesterday's OECD report -- we are going to carry on having an inequality problem too -- indeed it will get worse. This is less a prediction, more a matter of arithmetic. Imagine for a moment that we find ourselves transported into an unlikely egalitarian future, in which pay increases (in per cent) at the top are exactly the same as those at the bottom (bear with me), well, even in this unlikely world, income inequality between households will rise. This is because households further down the income scale receive a significantly smaller portion of their budget from wages than the average household does -- never mind the most affluent. Consequently a given wage increase has a smaller impact on their overall income than it does for those further up the scale.

The only way this dynamic towards ever more polarised household incomes will be countered is either by more aggressively redistributive tax and benefit policies, or a disproportionately large rise in employment levels among this part of the population. And currently we're heading in the wrong direction on both these fronts. Brace yourself.

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

Nicola Sturgeon. Photo: Getty
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For the first time in decades, there is genuine dissent in Scottish Nationalist ranks

The First Minister is facing pressure to talk less about independence - and bring on new talent in her party.

She so recently seemed all-powerful, licensed to reign for as long as she chose, with the authority to pursue the return of our national sovereignty. We would then have the ability to strike our own deals on our own terms, a smaller, smarter, leaner nation freed from the stifling constraints of partnership with a much larger neighbour. There was, she repeatedly told us, nothing to be afraid of.

Now, suddenly, she is the victim of her own miscalculation: having misread the public mood, having raced too far ahead of moderate opinion, she finds herself at bay. The voters have delivered a public humiliation, while an opposition party until recently lampooned as unelectable is on the march. There is, suddenly, talk of her departure sooner rather than later.

Yes, this is a tough time to be Nicola Sturgeon…

Let’s not overstate it. The position of Scotland’s First Minister is considerably more secure than that of the UK’s Prime Minister. Theresa May wants out as soon as is feasible; Sturgeon, one suspects, will have to be dragged from Bute House. Sturgeon retains enough respect among the public and support among her colleagues to plough on for now. Nevertheless, things are not what they were before the general election and are unlikely ever to return to that happy state.

It’s all because of Scexit, of course. Sturgeon’s unseemly sprint for the indy finishing line left enough Scottish voters feeling… what? Mistreated, taken for granted, rushed, patronised, bullied… so much so that they effectively used June 8 to deliver a second No vote. With the idea of another referendum hanging around like a bad headache, the electorate decided to stage an intervention. In just two years, Sturgeon lost 40 per cent of her Westminster seats and displaced half a million votes. One could almost argue that, by comparison, Theresa May did relatively well.

For the first time in decades, there is genuine dissent in Nationalist ranks. Tommy Sheppard, a former Labour Party official who is now an influential left-wing SNP MP, published an article immediately after the general election calling on the First Minister to ‘park’ a second referendum until the Brexit negotiations are complete. There are others who believe the party should rediscover its talent for the long game: accept the public mood is unlikely to change much before the 2021 devolved elections, at which point, even if the Nats remain the single largest party, Holyrood might find itself with a unionist majority; concentrate on improving the public services, show what might be done with all the powers of an independent nation, and wait patiently until the numbers change.

There are others – not many, but some – who would go further. They believe that Sturgeon should take responsibility for the election result, and should be looking to hand over to a new generation before 2021. The old guard has had its shot and its time: a party with veterans such as Sturgeon, John Swinney and Mike Russell in the key jobs looks too much like it did 20 years ago. Even the new Westminster leader, Ian Blackford, has been on the scene for donkey’s. There are more who believe that the iron grip the First Minister and her husband, SNP chief executive Peter Murrell, have on the party is unhealthy – that Murrell should carry the can for the loss of 21 MPs, and that he certainly would have done so if he weren’t married to the boss.

The most likely outcome, given what we know about the First Minister’s nature, is that she will choose something like the Sheppard route: talk less about independence for the next 18 months, see what the Brexit deal looks like, keep an eye on the polls and if they seem favourable go for a referendum in autumn 2019. The question is, can a wearied and increasingly cynical public be won round by then? Will people be willing to pile risk upon risk?

As the hot takes about Jeremy Corbyn’s surprise election performance continue to flood in, there has been a lot of attention given to the role played by young Britons. The issues of intergenerational unfairness, prolonged austerity and hard Brexit, coupled with Corbyn’s optimistic campaigning style, saw a sharp rise in turnout among that demographic. Here, Scotland has been ahead of the curve. In the 2014 referendum, the Yes campaign and its can-do spirit of positivity inspired huge enthusiasm among younger Scots. Indeed, only a large and slightly panicked defensive response from over-65s saved the union.

That brush with calamity seems to have been close enough for many people: many of the seats taken from the Nats by the Scottish Tories at the general election were rural, well-to-do and relatively elderly. The modern electorate is a fickle thing, but it remains rational. The Corbynites, amid their plans for total world domination and their ongoing festival of revenge, might bear that in mind.

Chris Deerin is the New Statesman's contributing editor (Scotland). 

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