Wednesday 6 December 2006

Economics of the Real World

At times recitations by politicians of economic statistics to prove their successful management of the economy can come across as complacent and even unreal when matched against the day to day reality of most people’s lives.

Undoubtedly in his Pre-Budget Report the Chancellor will lay claim to a series of data evidencing the robustness of the UK economy and its underlying strength in meeting the economic challenges of the globalised economy. This is the traditional approach to economics.

There is another economics though. It is the economics of the real world, a world the majority of us inhabit. Real world economics tell a different story. Real world economics use alternative measurements to assess the success or failure of our economic policies. This basket of measurements comprises those elements which determine the quality of life families experience in modern day Britain.

In real world economics, budgetary decisions are assessed against a checklist, identifying basic benchmarks of life chances, including:

Child poverty: Currently, infant mortality is twice as high for children born to unskilled manual workers, and these children are five times more likely to die in an accident. Nearly 3.5m children remain in poverty, representing 27% of all children. Half of these children have at least one parent working. Nearly 100,000 families are living in temporary accommodation and one in seven children, about 1.6 million, are growing up homeless or in bad housing.

Unemployment: UK unemployment has risen to 5.6%. Over the past year, there are an extra 263,000 people out of work, and an extra 70,100 claiming Jobseekers’ Allowance. Youth unemployment, whether measured by claimant count or by the ILO standard, is at its highest level since 2000 at 10% for the under-25s.

Income poverty: A full-time job at the minimum wage would mean an annual salary of just £6,435 for a 16-17 year old or £8,677 for an 18-21 year old. Even the minimum wage for those aged 22 and above equates to just £10,432. For working adults, the poverty rate is 19% - the same as in 1997. Women comprise two-thirds of income support claimants. The gender pay gap remains at 20% for full-time work, while women in part-time work receive 40% less. Ethnic minorities earn less than 16% than their white colleagues. Student debt has risen to an average of £13,501 upon graduation, and graduates pay 42% of their salaries in tax, compared with 41% for top rate tax earners. Personal debt is at unprecedented levels and personal bankruptcies and insolvencies are rising at an alarming rate.

Wealth and Tax Inequality: In 2005, FTSE 100 directors have grown by 28%, compared with average earnings increase of 3.7%. Earnings growth in the financial sector is running close to 7.0%, while for non-financial workers, real pay is falling sharply. The Chancellor’s insistence of a public sector pay cap of 2% will result in a real terms pay cut for millions of public sector workers. By adhering to Thatcher’s tax policies, the poorest fifth of the population are taxed more heavily than the richest fifth. The richest 1% own 34% of UK wealth and the poorest 50% own only 1% of UK wealth. The inevitable outcome is that social mobility has declined since 1997.

Health Inequality: Male manual workers are 40% more likely to suffer from chronic sickness than their non-manual counterparts. Life expectancy is 10 years shorter for the poorest.

Pensioner poverty: Nearly 20% of pensioners remain in poverty, and this is disproportionately women and ethnic minorities, whose lower pay throughout their working life results in poverty in their retirement. Due to means-testing many of the poorest pensioners are not receiving their full entitlement.

These are the startling everyday facts demonstrating that while by traditional economic standards the Chancellor will applaud himself for the prudent management of the economy, by real world economic standards the last 9 years have been an opportunity largely missed.

The Chancellor and commentators may claim that the fundamentals of the economy are sound. However, these are the fundamentals which affect the real world economy. They include a decent income, avoiding debt and poverty, having a decent roof over one’s head. On these measurements of the basic fundamentals of life, for many families in Britain the picture is not so rosy.

They pose the question, what has New Labour been doing for all this time – the longest period of Labour Government, and the only post-war Labour Government to have overseen an increase in inequality.

The Left Economics Advisory Panel (LEAP), which I chair, has made a number of proposals in its Alternative Pre- Budget Report, which you can download here.