Unemployment falls sharply but the living standards crisis continues

Joblessness fell to 7.4%, the lowest figure since May 2009, but total pay rose by just 0.9%, a real-terms cut of 1.2%.

In the form of today's unemployment figures, Christmas has come early for David Cameron. Joblessness fell by 99,000 in the last quarter to 2.39 million (7.4%), the lowest level since May 2009, while employment rose by 250,000 to 30.09 million (although the rate, at 72.0%, remains below its pre-recession peak of 73.1%). The coalition now has an unarguably good story to tell on jobs, something we can expect Cameron to make much of at the final PMQs of the year today. 

But these headlines figures mask some worrying trends. Total pay, including bonuses, rose by just 0.9%, a real-terms cut with inflation at 2.2% over that period. In the public sector, pay fell in nominal terms by 0.3% (and will continue to fall in real-terms until at least 2015-16 due to George Osborne's pay cap). 

As well as enduring a living standards crisis, with the longest fall in wages since 1870, the UK is also suffering from a crisis of underemployment. There are now a record 1.47 million people working part-time because they can't find full-time jobs. 

The squeeze goes on

Source: ONS

The Tories remain confident that wages are a "lagging indicator" and that higher output will translate into higher salaries. As Osborne remarked after the publication of the most recent GDP figures, "If Britain is growing then the finances of Britain’s families will start to grow." 

For Labour, this optimistic analysis proves that the Conservatives have failed to grasp that the crisis is not merely cyclical but structural. The link between higher growth and higher wages has been severed and will not be easily repaired. Ed Miliband’s team point to the pre-crash period, when incomes for millions of low-and middle-income earners stagnated even in times of strong growth, as evidence that the market can no longer be relied upon to deliver for the majority. In an economy as unequal as Britain’s, any gains quickly flow to the top. If, as forecast, wage growth returns next year, it will be of the unbalanced kind seen in April, when high earners collected their deferred bonuses in order to benefit from the reduction in the top rate of tax (the one month since May 2010 in which real incomes rose).

If Labour is right, it is hard to see the Tories winning the credit they hope for the recovery. Confronted by Miliband's "cost of living" offensive, their instinct remains to shift the debate back to the macroeconomy. But they should be wary of relying on this line of attack. To most voters, after all, living standards are the economy. 

Unemployment fell by 99,000 to 2.39 million, the lowest level since May 2009. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

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