UK incomes are decoupling from economic health

Has the typical family gained from the UK's growth since the 1970s?

On both sides of the atlantic, there has been a relatively long-running debate about the extent to which "decoupling" – the failure of typical household incomes to grow at a rate matching the increase in GDP – has occurred.

The classic treatment of the topic compares GDP per capita to the median family income, as Lane Kenworthy did for the USA:

The difference is clear, albeit not entirely unsurprising (what the graph shows is largely the result of the large increase in income inequality since the 1980s). Yet not everyone accepts that it demonstrates a real phenonmenon.

Kenworthy writes:

One objection is that the price deflator typically used to adjust GDP per capita for inflation differs from the deflator used for median family income. I’ve addressed that here by using the same deflator for both.

A second concern has to do with GDP per capita as an indicator of economic advance. Since the 1970s a larger portion of GDP has gone to replace old capital equipment and therefore can’t go to household income. Also, the number of persons has increased less rapidly than the number of households, so a per capita (per person) measure of GDP could mislead.

A third worry is that the income measure used to calculate median family income is too thin. If a growing portion of GDP has gone to employer benefits, that would help middle-class households, but it wouldn’t show up in these income data.

He addresses the second and third concerns by using a per-household measure, which includes in-kind payments and the effects of taxation. The result is a very similar graph:

This demonstrates, he says, that "decoupling is real and sizeable".

But what about the UK? Have we got the same problem? Yes:

All the data comes from the ONS, the inflation measure used is RPI, and both median and mean household income are taken measured from after the application of taxes and distribution of benefits.

Just as in the US, income growth for middle-class households has become decoupled from growth of the economy.

Stocks are up in the NYSE, but real incomes aren't. Credit: Getty

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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6 times government ministers have contradicted each other over Brexit

Getting your line straight is slightly more complex than a moon landing. 

“No deal is better than a bad deal,” Theresa May told Jeremy Paxman during the 2017 general election campaign. Almost exactly two months on, her Chancellor, Philip Hammond, has declared the UK will seek a transitional deal that could last three years.

Hammond’s comments come a day after government ministers contradicted themselves over when free movement could end. “Strong and stable”, the Tory campaign slogan, has gone the way of Labour’s Ed Stone. 

Here’s a selection of times government ministers have contradicted each other over Brexit.

1. Free movement

Brandon Lewis vs Amber Rudd and Michael Gove

The immigration minister Brandon Lewis declared on 27 July that a new immigration system would be in place from the spring of 2019.

But his departmental boss, the home secretary Amber Rudd, said the same day that there would be an “implementation period” while the flow of EU workers continued and there would be no cliff edge.

Meanwhile, environment secretary Michael Gove and non-expert Brexiteer said days earlier that there was likely to be a transitional period where free movement continued for two years.

2. Chlorinated chicken

Michael Gove vs Liam Fox

One question emerging from discussion of a potential UK-US trade deal was whether chlorine-washed chicken would be allowed into British supermarkets. The international trade secretary Liam Fox said such chicken was “perfectly safe”.

He may not have been round to Michael Gove’s recently for dinner, then. The environment secretary said he opposed the import of chlorine-washed chicken and that “we are not going to dilute our high food-safety standards” in pursuit of “any trade deal”. 

3. Moon landings

David Davis vs Liam Fox

In June, Brexit secretary David Davis suggested the negotiations to leave the EU were more complicated than landing on the moon.

His fellow Brexiteer Liam Fox, on the other hand, said in July that a future UK-EU trade deal should be “the easiest in human history”. Then again, maybe he just has a different definition of easy.

4. Single market and customs union

David Davis vs Philip Hammond

Perhaps one reason the Brexit secretary is finding it so tricky is that on 27 June he told a conference he plans to leave the single market and customs union by March 2019

But the Chancellor, aka the Mopper Up of Economic Mess, stressed Britain was heading down a “smooth and orderly path”. 

5. EU army

Michael Fallon vs Boris Johnson

In 2016, fresh from a Leave campaign which warned of the dangers of an EU army, foreign secretary Boris Johnson voiced his support for… an EU army.

Defence secretary Michael Fallon, though, had previously said the UK would continue to resist any rival to Nato. 

6. The migration cap

Theresa May vs David Davis and Philip Hammond

As home secretary, Theresa May defended the net migration cap, an idea the Tories thought up while in opposition, even though in practice it was widely criticised and never met. Even though, according to the George Osborne-edited Evening Standard, none of her colleagues privately back the target, it has stayed under her premiership. 

Some ministers have publicly questioned it as well. As early as March, Davis said immigration might go up after the UK leaves the EU.  In June, Hammond said the system for businesses recruiting foreign workers would not be more “onerous” than it is at present. 

(You can see all the ministers in the Brexit government that have realised reducing immigration might be a problem for them here)

 

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.