Economic news has been noticeably cheery recently. Today, the ONS announced the economy grew by 0.8 per cent in the first quarter of 2014 – the fifth successive period of GDP growth. Yesterday, the CBI reported survey results showed business optimism at its highest since the survey started in 2003. And two weeks ago, the ONS reported that wage growth had caught up with inflation and that there were 239,000 more people employed between December 2013 and February 2014 than in the previous three months.
There are caveats to this good news. When bonuses were excluded, wage rises were still lower than inflation. On employment, 61 per cent of the rise was in self-employment, which is associated with higher poverty and can indicate that people are struggling to find jobs in other parts of the economy. But the general trends are looking positive.
We are not cheering yet, though, because increasing evidence shows that a return to growth will not necessarily benefit those on low incomes. Evidence from the Resolution Foundation’s Commission on Living Standards analysed household incomes in the period of growth between 2003 and 2008. This showed that increases in low and middle incomes came mainly from tax credits; these families benefited remarkably little from economic growth itself.
JRF’s research has shown that this is also the case when you look at the economies of cities: many of the cities which achieved the best economic growth saw poverty stay the same or get worse. A study examining the experiences of deprived communities showed that they were hit hardest by recessions, but did not necessarily benefit from recovery.
These studies highlight two important reasons why growth does not benefit those at the bottom. First, higher employment is the main way that growth reduces poverty but tends to be distributed unevenly with significant groups of people, and places, excluded. Second, since the early 1990s, improvements in productivity have increased wages for the top but not the bottom half of earners.
Our evidence suggests three ways to make sure the emerging recovery helps those on low incomes.
First, create better jobs as well as more jobs. For example:
- Raise the National Minimum Wage and promote take up of the Living Wage.
- Create industrial strategies for low pay/low skill sectors such as retail, care, hospitality, logistics and warehousing.
- Address youth unemployment by improving careers advice and creating more and better apprenticeships.
- Improve the design of Universal Credit so that people can keep more of the money they earn.
Second, improve the quality of childcare, as well as its affordability and availability, through:
- More generous, shared maternity and paternity leave.
- Higher qualifications for staff who have or are working towards a childcare related level 3 qualification.
- Using the new Early Years Premium to increase access to high quality childcare among children from low income backgrounds.
Third, reduce living costs:
- Increase affordable housing by giving social landlords more flexibility around setting rents, reforming the private rental sector to provide more secure tenancies and supporting councils to build more social housing.
- Reduce the poverty premium, where low income households pay as much as 10p in the £1 more for utilities and financial services.
- Reform policies on energy and climate change so that they do not further disadvantage low income households.
These steps would help us to avoid repeating the history of recoveries failing to help those who have suffered most in recessions.