Britain's recovery: earners struggle, owners prosper
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Version 0 of 1. Courtesy of 2014's unlikely literary chart-topper, French economist Thomas Piketty, the anxiety of the hour is the tendency for wealth to beget wealth more rapidly than anybody could hope to earn it. If capital leaves labour ever further behind, the result is an unequal, class-bound society with no room at the top for people to work their way up. The analysis is still more talked about than read, and – no doubt – important critiques remain to be written. But it has to be said that the sort of recovery taking shape in Britain could have been designed to make Mr Piketty's point. After years of stagnation it is viewed as cause for celebration that national income is rising by about 3%, even though – in a growing population – this still leaves income per head much lower than six years ago. But alongside the continuing squeeze in the cash that families have coming in is a tremendous resurgence in the form of the wealth that obsesses Britain most. House prices are not inching up by 2% or 3% a year, but – according to one index of asking prices – soaring by 3.6% a month. In other surveys the surge is not quite so extreme, and there are parts of the UK – notably Wales and the north – where there is no boom. The overall average rise, however, is now in double figures, pumped by a London bubble in which owning pays more handsomely than earning for those lucky millions who snapped up a home when doing so was more realistic. For millions of others, the result, reflected in a historically unprecedented rise in a renting, is that home ownership slips out of view. Then there are the hundreds of thousands, caught between these two bigger groups, who are just considering stretching themselves to the very limit, to get in on the action while they still can. It is the decisions made by this third, smaller, group that will be most fateful. Their urge to buy while they still (just) can is certainly understandable, and arguably rational. But with the prospect of an interest rate rise finally moving into view, the dangers of buying fast and repenting at leisure are plain. There are some obvious policy responses: tests on the strength of banks making the loans and on the affordability of these for the lenders concerned. The Bank of England's governor, Mark Carney, talks about such things. There is also one thing that public policy ought not to do, namely, to inflate the bubble further. Regrettably, George Osborne's Help to Buy scheme does precisely that, by tasking taxpayer money with inducing banks to lend to homebuyers that they would, and perhaps should, otherwise turn away. It ought to go – completely, and at once. Nigel Lawson has advocated immediate restrictions as a signal of intent to scrap it soon. He should know from his own time as chancellor – when pre-announced cutbacks on mortgage tax relief triggered a pre-emptive buying stampede that soon gave way to a bust – that these things are best done overnight. Moving from owning to earning, hard times have produced a sharp squeeze on wages, with a real-terms fall of about 8% across the board. In the recovery, basic pay is still lagging behind most inflation measures, something felt keenly at the bottom, where the purchasing power of the full-time minimum wage fell by about £1,000 in the five years after 2008. Mr Osborne says he would like to see a rise from £6.31 to £7 an hour by 2015, but even if it happens some of that will be eaten up by inflation. Ed Miliband this week proposes something bolder, pegging the minimum to a fixed percentage of the middling wage, so that the poor don't fall further behind. That is a good idea insofar as it goes, but given the tendency of the top 1% to gobble up growth at the expense of the modestly paid as well as the poor, it would be more reassuring to the low-paid if their rate were pegged to an overall average, which factored in the boardroom as well as the worker in the middle. On pay and property prices alike, there is no time to waste in making reforms, if Britain is to achieve a recovery that rewards toil a little more, and title deeds a little less. |