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| Government's Easter pay rise is not all it's cracked up to be | Government's Easter pay rise is not all it's cracked up to be |
| (7 months later) | |
| When George Osborne promised Britain a pay rise in the summer of 2015, fresh from electoral victory over Ed Miliband, he pledged a “national living wage” in an attempt to steal a march on his defeated opponent. | When George Osborne promised Britain a pay rise in the summer of 2015, fresh from electoral victory over Ed Miliband, he pledged a “national living wage” in an attempt to steal a march on his defeated opponent. |
| Three years later, his promise means more than 2 million workers received an inflation-beating pay rise of 4.4% on Easter Sunday as the living wage rose for the second time, from £7.50 per hour to £7.83 for those over the age of 25. The increase amounts to more than £600 per year for full-time workers on basic pay. | Three years later, his promise means more than 2 million workers received an inflation-beating pay rise of 4.4% on Easter Sunday as the living wage rose for the second time, from £7.50 per hour to £7.83 for those over the age of 25. The increase amounts to more than £600 per year for full-time workers on basic pay. |
| Combined with steps to raise the personal tax threshold, taking more low-income families out of paying tax altogether, it makes for a powerful political message: the Conservatives are the party of the workers, not Labour. Trust us, we’re putting more money in your pocket. | Combined with steps to raise the personal tax threshold, taking more low-income families out of paying tax altogether, it makes for a powerful political message: the Conservatives are the party of the workers, not Labour. Trust us, we’re putting more money in your pocket. |
| But the policy was a masterclass in political deceit. Even though the promise has been kept, and is in some small way a sign of progress, the average pay of British workers remains 6% below its pre-financial crisis peak. Britain hasn’t had a real pay rise in almost a decade. | But the policy was a masterclass in political deceit. Even though the promise has been kept, and is in some small way a sign of progress, the average pay of British workers remains 6% below its pre-financial crisis peak. Britain hasn’t had a real pay rise in almost a decade. |
| As for the language used to make Osborne’s argument, the government’s national living wage does not deserve the name. The term belongs to the Living Wage Foundation, which has campaigned for better pay since 2001 – well before the then-chancellor used the term to rebadge the national minimum wage first introduced by Tony Blair’s Labour. | As for the language used to make Osborne’s argument, the government’s national living wage does not deserve the name. The term belongs to the Living Wage Foundation, which has campaigned for better pay since 2001 – well before the then-chancellor used the term to rebadge the national minimum wage first introduced by Tony Blair’s Labour. |
| The foundation warned last week that a worker on the new government minimum will receive almost £1,800 less per year than they really need for basics such as housing, transport, childcare and food. | The foundation warned last week that a worker on the new government minimum will receive almost £1,800 less per year than they really need for basics such as housing, transport, childcare and food. |
| The government’s own official number cruncher, the Office for National Statistics, also warned the new government minimum falls short of average family spending. It reckons mums and dads working full-time would earn £212 per week less than the average amount spent by all households with two adults and two children last year. | The government’s own official number cruncher, the Office for National Statistics, also warned the new government minimum falls short of average family spending. It reckons mums and dads working full-time would earn £212 per week less than the average amount spent by all households with two adults and two children last year. |
| Put simply, the living wage rise is not what it says on the tin. Osborne stole the term for reasons of political expediency, in a sleight of hand that must not be forgotten over the coming weeks when Tory ministers boast of raising workers’ pay. | Put simply, the living wage rise is not what it says on the tin. Osborne stole the term for reasons of political expediency, in a sleight of hand that must not be forgotten over the coming weeks when Tory ministers boast of raising workers’ pay. |
| The Conservatives have pledged to increase the living wage to £9 an hour by 2020. Labour has trumped that by saying workers, including those under the age of 25, should be paid £10 an hour by the end of the decade. | The Conservatives have pledged to increase the living wage to £9 an hour by 2020. Labour has trumped that by saying workers, including those under the age of 25, should be paid £10 an hour by the end of the decade. |
| But it’s worth remembering earnings are not the only source of income. Tax credits, benefits and investments can also be counted – although the latter rarely applies to the lowest earners. | But it’s worth remembering earnings are not the only source of income. Tax credits, benefits and investments can also be counted – although the latter rarely applies to the lowest earners. |
| Analysis from the Bank of England last week showed the bottom 10th of earners take home less in wages from hard graft than those at the top of the pile make sitting on their investment portfolios. | Analysis from the Bank of England last week showed the bottom 10th of earners take home less in wages from hard graft than those at the top of the pile make sitting on their investment portfolios. |
| Herein lies another policy change set in motion by Osborne three years ago, but one his successor, Philip Hammond, is less keen to talk about. | Herein lies another policy change set in motion by Osborne three years ago, but one his successor, Philip Hammond, is less keen to talk about. |
| While the chancellor happily mentioned the living wage rise at the spring statement last month, he glossed over some other significant changes that also take effect from the start of this week. The “non-event” status given to the spring statement was, again, far from the truth. | While the chancellor happily mentioned the living wage rise at the spring statement last month, he glossed over some other significant changes that also take effect from the start of this week. The “non-event” status given to the spring statement was, again, far from the truth. |
| A massive £2.5bn of working-age benefit cuts will take effect from the start of this week, as part of the £10bn of cuts earmarked by Osborne in 2015. A further £2.7bn savings must be found in the year from April 2019, just as the UK leaves the European Union. | A massive £2.5bn of working-age benefit cuts will take effect from the start of this week, as part of the £10bn of cuts earmarked by Osborne in 2015. A further £2.7bn savings must be found in the year from April 2019, just as the UK leaves the European Union. |
| According to the Resolution Foundation, those cuts will mean “just about managing” families in the poorer half of Britain in terms of income – the very households Theresa May pledged to help on the steps of Downing Street when she took power almost two years ago – will lose about £1,000 per year on average by the early 2020s. As a result, the thinktank reckons Britain is set for the largest rise in income inequality since the 1980s. | According to the Resolution Foundation, those cuts will mean “just about managing” families in the poorer half of Britain in terms of income – the very households Theresa May pledged to help on the steps of Downing Street when she took power almost two years ago – will lose about £1,000 per year on average by the early 2020s. As a result, the thinktank reckons Britain is set for the largest rise in income inequality since the 1980s. |
| The freeze on benefits under way since 2015 means most of the support for working-age adults won’t increase with inflation this month as usual. According to the Institute for Fiscal Studies, this will take £200 per year on average off 10.5m households – a great many more than the rise in the living wage will help. | The freeze on benefits under way since 2015 means most of the support for working-age adults won’t increase with inflation this month as usual. According to the Institute for Fiscal Studies, this will take £200 per year on average off 10.5m households – a great many more than the rise in the living wage will help. |
| There are some signs of hope. Rising real wages – when average pay growth beats the rate of inflation – are in sight after the ONS reported that pay in the three months to January was rising at the fastest rate in two years. With inflation also now beginning to fall, that could mean pay begins to outstrip rising prices within the coming months. | There are some signs of hope. Rising real wages – when average pay growth beats the rate of inflation – are in sight after the ONS reported that pay in the three months to January was rising at the fastest rate in two years. With inflation also now beginning to fall, that could mean pay begins to outstrip rising prices within the coming months. |
| Many employers choose to pay the Living Wage Foundation recommended hourly rate of £8.75 and £10.20 in London, viewing it as a selling point to attract and reward good employees. Manchester city council, for one, recently moved to pay home care workers in the city the real living wage to help retain staff. | Many employers choose to pay the Living Wage Foundation recommended hourly rate of £8.75 and £10.20 in London, viewing it as a selling point to attract and reward good employees. Manchester city council, for one, recently moved to pay home care workers in the city the real living wage to help retain staff. |
| Other bosses are concerned that higher statutory pay could prompt rising unemployment, as firms are faced with the prospect of paying more money to fewer workers. But that discounts the idea that raising the minimum wage can boost the spending power of consumers, lifting demand in the economy and therefore helping create the conditions for more jobs to be created. | Other bosses are concerned that higher statutory pay could prompt rising unemployment, as firms are faced with the prospect of paying more money to fewer workers. But that discounts the idea that raising the minimum wage can boost the spending power of consumers, lifting demand in the economy and therefore helping create the conditions for more jobs to be created. |
| There are already clear signs about the dangers for the economy when British households have too little money in their pocket to spend. Several retailers – including Maplin, Toys R Us and Bargain Booze owners Conviviality have gone bust, while others are teetering on the brink. | There are already clear signs about the dangers for the economy when British households have too little money in their pocket to spend. Several retailers – including Maplin, Toys R Us and Bargain Booze owners Conviviality have gone bust, while others are teetering on the brink. |
| Fresh figures from the ONS last week showed households became net borrowers, rather than savers, for the first time since 1987. Meanwhile, the households savings ratio, which measures outgoings and incoming money, is at its lowest level since 1963. | Fresh figures from the ONS last week showed households became net borrowers, rather than savers, for the first time since 1987. Meanwhile, the households savings ratio, which measures outgoings and incoming money, is at its lowest level since 1963. |
| With the Brexit countdown clock having now reached a year to go until the UK leaves the EU, this should be a warning that Britain needs the pay rise Osborne promised more than ever. | With the Brexit countdown clock having now reached a year to go until the UK leaves the EU, this should be a warning that Britain needs the pay rise Osborne promised more than ever. |
| Living wage | Living wage |
| Economics viewpoint | Economics viewpoint |
| National living wage | National living wage |
| Pay | Pay |
| Benefits | Benefits |
| Family finances | Family finances |
| Minimum wage | Minimum wage |
| Work & careers | |
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