How Cameron misled MPs on living standards

The PM's claim that individuals' disposable income rose last year is not supported by the data.

As Ed Miliband charged him with presiding over a "cost-of-living crisis" at today's PMQs, David Cameron made an eye-catching claim:

What you have to do is look at disposable income as well as wages. Because this government has cut people's taxes, because we are allowing people to keep £10,000 of what they earn before they pay taxes, disposable income went up last year and it is rising as we speak today.

Given that, as Miliband stated, real wages have fallen for 39 of the 40 months that Cameron has been Prime Minister (the exception being April 2013 when deferred bonuses were paid out following the abolition of the 50p tax rate) how can he state that "disposable income went up last year"?

The PM's claim relates to the fact that real household disposable income rose by 1.6% in 2012. This, crucially, is not a measure of individuals' spending power (as Cameron implied), or of average household income, but the figure reached when all households' post-tax income is added together. Since the number of households increases each year (raising the absolute figure), this is a poor guide to living standards.

A better measure is the rate of average weekly earnings growth, which stood at just 0.7% in June-August, a 2% real-terms cut with inflation at 2.7% (the highest level in the EU). Even on the Tories' preferred metric, the picture is a grim one. In the most recent quarter, real household disposable income fell by 0.7% year-on-year. As much as he may wish otherwise, Cameron hasn't got a good story to tell on living standards yet.

David Cameron listens to questions from journalists at Stormont Castle in Belfast, Northern Ireland on October 11, 2013. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.