For months, Ed Miliband’s focus on living standards has allowed Labour to dominate the political agenda. But with wages soon likely to outstrip prices (average wage increases currently stand at 1.4 per cent against inflation of 1.7 per cent), many outside and some inside of the party argue that he will have to change tack. Just as the return of growth forced the abandonment of Labour’s “too far, too fast” attack on the cuts, so, they argue, the return of pay rises will repel its “cost-of-living” offensive.
But in an article in today’s Independent, the day before what sources suggest will be a major speech on the economy, Miliband outlines why he’s not about to stop banging on about living standards. While wages may finally be about to creep above inflation, after falling for five consecutive years, he warns that this won’t be enough to repair the severed link between growth and earnings:
Until the 1990s, for every percentage point increase in economic growth, wages for middle-income Britain grew by an almost identical amount. That no longer holds true because the link between growth and the living standards of middle Britain has been broken.
Office for Budget Responsibility forecasts for the next four years published at the Budget predict that real earnings will on average increase at only half the level of economic growth in 2015 and will still lag behind, even in 2018.
And even these figures mask the truth of what is happening to middle-income Britain. It is expected that wage rises will disproportionately benefit those at the top while some major costs, such as housing, which hits working families hardest, are not included in the official statistics. So any gains middle-income Britain gets as the economy picks up will be nothing compared with the scale of the crisis that remains or the assault on family finances of recent years.
Miliband’s team points 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. Based on the RPI measure of inflation (which includes housing costs), the OBR forecasts that wages will be flat until 2019; there will be plenty of people who feel no better off in the next decade, let alone in the next year.
In a riposte to George Osborne, who last week committed the Tories to seeking “full employment” (confusingly defined by Osborne as having more working age people in employment than any other G7 country), Miliband warns that this won’t be enough if it merely means more low-paid, low-skilled, insecure jobs.
He writes: “The Chancellor is not only 70 years too late; he is also at least a decade out-of-date. Today, full employment – and getting people back to work – remains an absolutely necessary ambition but one that has become insufficient. People know that work no longer guarantees the better future for their families they used to expect. They are asking: what kind of work, what kind of wages – and what kind of prospects?” And warns: “This Government cannot deal with these problems because lying beneath its claims of being converted to full employment is an economic ideology built on low pay, low skills, low prospects and low productivity.”
The challenge for Miliband remains to convince voters not just that they’re worse off under the Tories, but that they’d be better off under Labour. In the 2012 US election, Mitt Romney similarly resurrected Ronald Reagan’s famous line – “Are you better off now than you were four years ago?” – but the electorate stuck with Obama because the numbers were moving in the right direction and they doubted Romney could do any better. The Tories hope and expect UK voters will take the same view of Labour in 2015.
In his article, Miliband cites his plans to reduce youth unemployment and increase skills (through the party’s compulsory jobs guarantee), to crack down on exploitative zero-hour contracts, to spread use of the living wage, to cut business rates and to reform the banking sector to increase lending to SMEs. He also promises that Andrew Adonis’s forthcoming growth review will outline how Labour will devolve power from Whitehall to cities and towns so that they become engines of growth, a line that will reassure those on the Cruddasite wing of the party seeking a firmer commitment to localism.
What the piece lacks is the kind of retail offer that worked so well in the case of his energy price freeze. But that, one expects, may well come in tomorrow’s speech.