Living Standards Audit 2019

The  Resolution Foundation has published its annual report on living standards. Key findings include:

• Average disposable household incomes have roughly tripled since 1961, after accounting for inflation. But the last two-year period (2017-18 and 2018-19) looks to have been the worst on record outside of recessions.
• This period of weak growth post-referendum comes on the back of both the financial crisis as well as an earlier mid-2000s slowdown for some, with only a short period of healthy income recovery between 2012-13 and 2016-17.
• The groups most at risk of relative poverty have also changed. Parents living in couples, up to the age of 35, are now more likely to be living in poverty than a single pensioner age 80 or over is.
• Relative inequality remains high by international and historical standards, following rapid increases in the 1980s, but there has been only a small rise since then (for incomes after housing costs). Increases in employment since the mid-1990s, particularly among parents, have helped to hold down inequality while the distribution of housing cost rises has pushed it up.
• New analysis of different forms of working-age income finds that men and women have contributed in roughly equal measure to overall income growth over the past 25 years.
• Ordinarily, the most important driver of this overall growth has been hourly pay growth, rather than changes in employment or hours. However, households are still recovering from the crisis, with male employment income lower in 2017-18 than in 2007-08.
• Instead, the economy has relied on other forms of growth. Population growth has accounted for over-two thirds (65%) of overall GDP growth since 2007, compared to just 15% pre-crisis. Conversely, productivity growth has gone from accounting for the large majority (69%) of overall growth to just 22% post-crisis.
• These trends cannot be relied upon for future income growth, however, with some having already run out of road. To restore strong household income growth, we need to restore sustained productivity growth; make the right distributional choices to help everyone benefit from that growth; reduce housing costs, and build on the country’s previous successes in helping parents to work.
In 1961 a typical working man could expect to support a family and buy a house on a single average wage. Average disposable household incomes have roughly tripled since then. That begs the question – Why has it become so difficult for so many to manage on these increased incomes today? Research by  Cardiff University points to housing:
“Low pay and in-work poverty aren’t the same thing. Most low paid workers aren’t in poverty because many of them live in households with additional earners.”
“Housing tenure and housing costs are becoming much more important in determining poverty rates. All of the increase in working poverty between 2004/05 and 14/15 was experienced by families living in the private rented sector and social housing, without any increase for owner-occupiers.
There has been a shift away from owner-occupation and significant growth in the private rented sector. This is problematic from a poverty perspective because the private rented sector is associated with high housing costs, and elevated poverty rates, and a continued shift towards the private rented sector is likely to generate upward pressures on poverty rates in the UK.”

* Joe is a Vice-Chair of Hounslow Liberal Democrats, Chair of ALTER and PPC for Brentford and Isleworth

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10 Comments

  • Thank you for this. It is very interesting.
    The importance of housing costs are pointed out. The ability of young people to find somewhere affordable to live is a key factor if we are to look at the social aspects of these figures. This is something which as a party we need to campaign on as a priority.
    Another is the security at work. Leaving aside the ideas of zero hours contracts, there are many issues in employment security. One key one is the need to provide workers with the means to enforce the laws that exist. There is a lot of evidence that the incidence of bullying at work is related to the powerlessness of those being bullied.

  • Innocent Bystander 19th Jul '19 - 7:28pm

    Joe,
    BTW it’s McDonnell, not MacDonald and his manifesto is just massively more burdens on employers and a cornucopia of workers’ rights. Despite that, these employers are going enthusiastically to power a new era in industrialisation. Only in the dreams of the ultra left will they be so co-operative. Next is a National Lame-Duck Investment Bank which will only invest in the basket cases the canny private investors won’t touch. John DeLorean is back from the dead. He intends to put workers on company boards.
    Will they have all the personal liabilities under the Companies Acts that all directors bear?
    Where will these companies come from? The automotive sector? That would be Morgan Cars (177 employees). Every one of the rest have boards outside his jurisdiction.
    He will need to discover some UK controlled firms he can apply it to.

  • Innocent Bystander 19th Jul '19 - 11:14pm

    Joe,
    As I have come to expect, a thorough and thought through reply. Thank you again. However, although it would indeed be nice if your ambitions could come true, they can’t and won’t, not in the real world. Politicians may dream, but companies and individuals make choices in their own best interest and not to fullfil a misty eyed image of corporations as kibuttzes where employers and employees hold hands and sing Kum-by-Yah. The only one I know of is the John Lewis you mention and they saw their profits fall by 99% last year. Not promising. Other co-operatives are just micro entities with zero options to grow bigger. I know of no serious industrial player based on that co-operative model. In blunt terms, it simply isn’t going to happen, and the only emotional desire for such a model is to create an enterprise of equals with none of the despised elite.
    I do challenge the continuous comparisons to Germany. They have a different culture entirely and to follow their lead will take a century of effort and we would have to lose two major wars (which would wipe the smugness off our faces and give us the notion that we need to strive and sacrifice to succeed, as it did for them).
    Anyway, as I pointed out, our big corporations are controlled by foreign owners and boards so the worker director idea is just another non starter.
    Finally, I was horrified to read that Vince plans ” body like the OBR” to oversee the National Santa Claus Investment Bank. As bad as that ? Wow! Even worse than I thought. It will be like Dragon’s Den but everyone will get everything they ask for and will be a honeypot for every snake oil salesmen and bunco merchant out there. It must be. There is unlimited private funds for real ideas. Investors fight to get in on the ground floor. The NSCIB can only have lame ducks applying.

  • Joseph Bourke 20th Jul '19 - 2:03am

    Innocent bystander,

    I think there are grounds for believing that progress can be made in making corporations more accountable to their stakeholders including shareholders, staff, customers and the general public.

    Historically, investors in joint-stock companies could have unlimited liability. Such companies multiplied beginning in the 16th century to exploit opportunities to be found in the New World. European exploration of the Americas was largely financed by joint-stock companies. Governments were eager for new territory but were reluctant to take on the enormous cost and risks associated with these ventures.
    Entrepreneurs would sell shares in their ventures to many investors in order to raise money to fund voyages to the New World. The potential for resources to be exploited and trade to be developed was the attraction for many investors.
    The modern corporation is a joint-stock company that has been incorporated in order to limit shareholder liability. However, limited liability has also created more distance between investors shielded from liabilities and management i.e. the so called ‘agency problem’.

    The 2018 UK Corporate Governance Code promotes trust, transparency and integrity in business. One of the main changes relates to the relationship between stakeholders and the workforce. The new provision asks for greater board engagement with the workforce to better understand their views. Boards are also asked to show how they have considered stakeholder interests when performing their duty under Section 172[1] of the 2006 Companies Act.
    Institutional investors are beginning to put pressure on boards to address workforce engagement and environmental standards in the context of climate change risk https://boardagenda.com/2018/07/17/investor-urges-boards-to-embrace-worker-representation-set-out-by-new-code/
    “While workforce engagement is now an integral part of boards’ responsibilities under the new code, it doesn’t prescribe a single action. Instead, it suggests that one or a combination of methods should be utilised, including: a workforce-appointed director; a formal workplace advisory panel; and a designated non-executive director.”
    Larger businesses based on the cooperative model would include the Mondragon corporation https://www.mondragon-corporation.com/en/about-us/ that is among the top ten business groups by size in Spain. The French Credit Agricole group https://www.credit-agricole.com/en/group/discover-the-credit-agricole-group is a banking and credit union cooperative with revenues in excess of $100 billion.

  • Innocent Bystander 20th Jul '19 - 9:03am

    Joe,
    Thank you for a very worthwhile read. The FRC code is nicely vague and will allow the usual corporate tokenism for those companies in the public eye who want to seem woke, and will have no impact on most.
    Mntracon required the energy and focus of one determined priest, in the aftermath of a civil war, to be established and John Lewis wasn’t founded as a cooperative at all but by an entrepreneur who then gave his creation away. Note the need for a highly motivated individual who is also a devout humanist and altruist. Rare birds in my view.
    What will set up the proposed resurgence of UK cooperative entities? Some govt dept?
    I am sure the humanists would love to see a nation of kibbutz like industries where all employees are equal.
    But it isn’t going to happen. Your link was an interview with one investor (out of millions).
    I am sure we will see some window dressing in that direction to show companies are “concerned” even if they aren’t. What would change the game would be draconian legislation but that invokes my earlier point that companies and individuals can make choices in response. Choices that will have the opposite effect to that intended.
    With genuine respect, I think it a little futile to offer some tiny sparks of cooperative activity lying around. If I were to counter by pointing out those who were not operating that model it would crash the server. That category runs into millions.
    No one is talking of the drastic changes we need to make to rescue our economy. Only panaceas and silver bullets are on offer.
    But thanks again.

  • Innocent bystander,

    the FRC code is designed to provide flexibility and allow public companies to determine themselves how they will incorporate stakeholder engagement in their business models. I certainly prefer that to any kind of draconian legislation that is imposed by fiat.
    The cooperative model has its place in the provision of basic essential services. The municipal utility companies of years past of the kind pioneered by Joe Chamberlain in Birmingham are perhaps our best example of what works.

    The drastic changes we need to make to rescue our economy need to be focused on the UK’s poor levels of productivity in comparison with other developed economies. This is principally a problem that exits outside London and the Southeast.

    GFC economics produced a report on financing investment last year https://www.gfceconomics.com/wp-content/uploads/2018/06/Financing-investment-final-report-combined.pdf . The report recommends expanding the Bank of England’s toolkit to drive lending into productive investment, rather than real estate speculation, where excessive credit for the real estate sector is a big part of the problem.
    Summary
    • The Bank of England should be set a productivity growth target of 3% per annum. Using credit guidance, macroprudential supervision and interest rates, the Bank of England will be expected to set out how its policies are contributing to this target e.g a formal agreement between the Bank of England and the government showing how each will work with the other towards the 3% productivity target over the Parliament.
    • In light of this agreement, the Bank of England Governor will respond to each Budget in writing to the Chancellor. The letter should describe how the Government’s fiscal position (including tax and spend policies) is expected to impact on the 3% productivity growth target, as well as explaining any policy reactions required by the Bank. The Governor will take electoral commitments made by the governing party (in the manifesto) as given, commenting on the general economic outlook and productivity-promoting investment, including research & development.
    • The Bank of England should have more policy tools at its disposal through credit guidance. Existing policy tools (macroprudential) will need to be used more intensively. Faster productivity growth should improve the Bank of England’s policy latitude and ensure inflation does not overshoot the target.
    • The Bank of England will be expected to work with the Strategic Investment Board to increase private sector investment into critical areas of technology. It will be expected to collaborate with the National Investment Bank (NIB), UK Research & Innovation and the National Transformation Fund (NTF). The Bank of England (with the Office for Budget Responsibility) will need to evaluate the impact of spending through the NTF and lending by the NIB (on productivity, the potential growth path of the economy and the multipliers).

  • innocent Bystander 20th Jul '19 - 9:01pm

    Joe,
    Many thanks again for your efforts and I downloaded, and read through tear stained eyes, as much of the 5MB as I could stand.
    I think I’ll give up and return to simple hobbies and gardening and ignore the fate of the UK, there is no hope now, but thanks again. You always put a lot of effort into replies and present them with genuine courtesy.
    The govt. always needs a “word”. I remember “Innovation”, that replaced “Enterprise” which replaced “Technology”. Today’s word is “Productivity” and this document is full of the familiar brave targets and promises of 3% percentage point increases in this or that. All will be conveniently forgotten in a year or two and never mentioned again. As has happened every time before. As always happens. And a new “word” will emerge.
    As is the accepted practice, no sign of any concrete ideas are presented to fix the latest problem or even that the writers had any clue what the problem really is.
    Here too, are the exciting new bodies and panels, all with soaring titles and mission statements. All to provide jobs for the serial failures who have made such a mess of all the predecessor whizzo schemes. All will be quietly wound up by a future govt, when no one is noticing and no one is watching.
    I wonder what the next magic word will be when the “Productivity” word becomes too embarrassing to be uttered (after, of course, vast sums have been spent producing no progress).
    I’m guessing “Transformation” or “Macroprudential” and as the latter word has no meaning at all, no one will be able to claim it hasn’t been achieved.
    Thanks again, I enjoy your writings.

  • Peter Hirst 21st Jul '19 - 1:18pm

    It seems getting our housing policy sorted should be BJ’s first priority after Iran. The private rented sector will only work when it is a proper market with competition driving prices down while regulation keeps standards high. This means a surplus of such accommodation. When you have to accept whatever’s on offer, you’re going to be unfairly treated in a private profit centred environment.

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