Leader: The plight of Britain’s working poor

The headline figures on record employment mask more disquieting trends: Britain has endured the longest period of wage stagnation since the Napoleonic Wars. 

NS

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The UK economy, by one metric at least, has never been in better health. Employment is at a record high of 76.1 per cent and unemployment is at its lowest level since 1974-75 (3.9 per cent). The scourge of mass joblessness, which haunted Britain during the 1930s and the 1980s (when unemployment twice exceeded three million), has been banished.

At the same time, the national minimum wage, which was introduced 20 years ago on 1 April 1999, has risen to £8.21, making it one of world’s highest (exceeded by only France and Australia among OECD countries). Although free-market economists, such as Patrick Minford, consistently predicted that the minimum wage’s introduction would lead to a surge in unemployment, joblessness has continued to fall even as the legal minimum has risen from 45 per cent of median earnings in 1999 to 59 per cent.

Yet these headline figures mask more disquieting trends. Britain has endured the longest period of average wage stagnation since the Napoleonic Wars 200 years ago and earnings are not expected to return to their pre-crash peak until 2025. Workers are still £13 a week worse off than in 2007. The problem is not a lack of jobs but a lack of adequately paid ones. A significant share of total employment is part-time (26.3 per cent), temporary (5.6 per cent) or self-employment (14.8 per cent), including the insecure gig economy.

The promise of the Conservatives was that the burden of austerity would be shared by all and that the poorest would not be the hardest-hit. Yet in a decade of public spending cuts, as we have charted in our Crumbling Britain series, those promises have been broken. In 2018, as new data from the Office for National Statistics has recently shown, the incomes of the poorest fifth contracted by 1.6 per cent, while those of the richest fifth rose by 4.7 per cent. Income inequality, which the Tories long boasted had not risen since the 2008 financial crisis, is now beginning to increase.

Relative child poverty has risen for four consecutive years and now stands at 4.1 million despite a fall in the number of workless households to 13.7 per cent from 20 per cent when records began in 1996. Should welfare cuts continue, child poverty is forecast by the Resolution Foundation to rise to 37 per cent by 2023-24, surpassing a previous peak of 34 per cent in the mid-1990s. The freeze in child benefit alone (so that the payment does not rise in line with inflation) is expected to push 100,000 more children into poverty by 2023-24.

This is not merely an abstract concern. As works such as The Spirit Level (2009) have shown, inequality is associated with a range of economic and social maladies, including financial instability, crime, obesity, drug abuse, social immobility and educational failure.

Although Theresa May has abandoned the rhetoric of austerity, she has not reversed defining policies such as the freeze in working-age benefits. As well as ending this punitive measure, the government must increase the UK’s dismal productivity rate (which is 26.2 per cent lower than Germany’s, 22.6 per cent lower than the US’s and 16.3 per cent lower than the G7 average). The only sustainable means of increasing pay without triggering inflation is boosting the economy’s growth potential.

Yet rather than focusing on this quest, the government is absorbed by the Sisyphean task of Brexit, a policy with no economic upside. The Office for Budget Responsibility found that growth was 2 to 2.5 per cent lower by mid-2018 than it would have been had the 2016 EU referendum not been called. Rather than spending billions preparing for a no-deal Brexit, an outcome that both Mrs May and the Chancellor, Philip Hammond, regard as an act of self-harm, the UK should have invested in the infrastructure needed to support growth and communities.

After a decade of austerity, Britain is in urgent need of economic and social renewal. But far from curing the UK’s maladies, Brexit is multiplying them.

This article appears in the 05 April 2019 issue of the New Statesman, The Brexit wreckers