If living standards keep falling, get ready for Ed’s Reagan moment

The charge that the Tory-led coalition has no plan to protect living standards is slowly gaining tra

Come the 2015 general election, and the inevitable television debates, Ed Miliband might consider borrowing a line from Ronald Reagan. "Are you better off now than you were four years ago?" he asked in October 1980, during the closing remarks of the final presidential debate against the Democratic incumbent, Jimmy Carter. It was a simple yet devastating question that resonated with a disgruntled American public, ground down by a recession at home and an energy crisis abroad. The hapless Carter suffered a landslide defeat.

Here in the UK, three decades on, the fallout from the recession continues to blight the economy. Growth has gone negative, unemployment stands at almost 2.5 million, wages are stagnating and inflation has risen to 4 per cent - double the target rate - as global oil and commodity prices soar. Worse still, the "age of austerity" has yet to begin: fiscal consolidation starts in earnest on 1 April. Conservative and progressive politicians obsess over spending cuts and the Budget deficit; meanwhile, low-and middle-income households witness their living standards decline at an increasing pace.

Young and reckless

Writing in the New Statesman on 10 January, Gavin Kelly, chief executive of the Resolution Foundation think tank and a former aide to Gordon Brown, pointed out that "Britain is in the midst of the biggest squeeze on living standards since the 1970s". Mervyn King, the coalition-friendly governor of the Bank of England, went further. "In 2011, real wages are likely to be no higher than they were in 2005," he said in a speech on 25 January. "One has to go back to the 1920s to find a time when real wages fell over a period of six years." Are you paying attention, Lord Young of Graffham? Young is the Tory peer and former enterprise adviser to David Cameron who told the Telegraph last November that the majority of Britons had "never had it so good ever since this recession - this so-called recession - started".

Cameron, an ex-PR man, promptly dismissed Young for his embarrassing comments. But sacking a 78-year-old, gaffe-prone peer is easy: combating the rise in living costs and consequent squeeze on household incomes is much more difficult. And it isn't helped by regressive austerity measures such as the VAT rise, the cuts to the childcare element of Working Tax Credit, a three-year freeze of child benefit and a two-year freeze in public sector pay for those earning over £21,000.

The charge that the Tory-led coalition has no plan to protect living standards is slowly gaining traction, inside and outside Westminster. On 27 February, Ed Balls used an interview to call for the abolition of the recent VAT rise on fuel, which he argued would save three pence per litre of petrol. The shadow chancellor said that the subsequent £700m loss to the Treasury could be covered by the extra £800m raised by the government's recently revised bank levy. His clever proposal prompted a panicked George Osborne - recalling the September 2000 petrol protests against Tony Blair - to publish a newspaper article in response to Balls. The Chancellor was bombastic and self-righteously indignant, but lacked any specific proposals on how to tackle rising petrol prices.

Then, On 28 February, Ed Miliband used a speech to the Resolution Foundation in London to warn of a "cost-of-living crisis for ordinary families . . . squeezed wages, squeezed prospects, squeezed aspirations". Such speeches are often spun in advance by aides of a party leader as "the most important speech of his/her leadership", but this one perhaps merited the hype. Miliband spoke of his mission as being to combat inequality - "It's why I am in politics" - and a desire to build a "fairer" and "more prosperous" capitalism.

In doing so, he distanced today's Labour Party from the ultra-Blairite indifference to income inequality, as exemplified by Peter Mandelson's notorious comment about being "intensely relaxed about people getting filthy rich". But the Labour leader acknowledged, too, the limits of Brownite redistribution by stealth and the party's over-reliance on benefits and tax credits.

“We were wrong not to focus more on the type of economy we were building," he said. He spoke impressively of the need to "break out of the low-pay, low-skill cycle" and the importance of creating not just jobs but "high-quality jobs" - through, for example, giving incentives to employers to invest in vocational training for their employees, as in Germany, as well as an active British industrial policy. With real wages in decline since 2003, he reiterated his support for the introduction of a "living wage", over and above the minimum wage, and even suggested that UK companies could be offered tax breaks to encourage them to pay such a wage to their workers.

Cost crisis

It has become fashionable among the well-paid and metropolitan members of our political and media elites to dismiss Miliband's idea of a "squeezed middle" - those 11 million adults in middle-income households, who, according to the Resolution Foundation, are neither "benefit-reliant" nor "high earners" - since his supposedly confused interview on the issue on Radio 4's Today programme last November. In his comment piece, Osborne mocked the Labour leader for his "failure" to "define" the phrase - and this from a government that has given us such vacuities as "muscular liberalism" (Cameron), "alarm-clock Britain" (Nick Clegg) and, lest we forget, the "big society".

The reality is that the "squeezed middle" is a phrase that resonates with voters - so, too, does talk of a "cost-of-living crisis". "Labour winning over 'squeezed middle' voters," proclaimed the headline in the Independent on 1 March, reporting on a ComRes poll showing Miliband's party leading the Tories among unskilled workers, skilled manual workers and the lower-middle class.

An earlier ComRes poll, on 17 February, found that only 23 per cent of voters believe the coalition understands the concerns of those on low incomes while 67 per cent think it doesn't.

“Living standards were a massive issue out there in the real world last May," says a former Labour Party strategist, "but inside the Westminster bubble it was massively underestimated." Not any more. If, in four years time, Cameron and Osborne have failed to reverse the rise in prices, decline in real wages and fall in living standards, Ed Miliband will be doing his best impression of Reagan.