British people in employment have earned £5000 less in the past 5 years than they had in the preceding half decade, according to a study conducted by the government this year.
The statistics, released by the Office for National Statistics, indicated that the annual income of the middle fifth salary homes in the country had dropped from £33,000 back in 2007 to only £28,000 last year. Furthermore, total yearly incomes of households have dropped from £38,000 to £32,000, implying that the average consumer has far less disposable income at their behest than they did 5 years ago. The data will undoubtedly be compounded on by cost of living critics who will point to the data as clear evidence that more needs to be done to alleviate the growing financial burden on falling salaries.
Labour leader Ed Miliband had previously warned of a wage squeeze that he argued meant that the amount people were earning every year was declining in actual value. Mr Miliband argued that government intervention was required in the market in order to help individuals combat the rising cost of living and ensure that their wages kept the same level of value as they had done in previous years.
Mr Miliband highlighted that the connection between economic growth, standard of living and actual wages was no longer present and that a change needed to be sparked in the market in order to re-establish correlated values between the three.
The fall in the middle sector of wages is alarming considering recent government policy to promote the meritocratic value of employment over using benefits.
The government would have hoped that the average wage would have risen in the past two years, considering their cuts to the benefits system and their slow ‘rolling back’ of the outstanding welfare system.
The report only covers to the end of the financial year 2011/2012, though commentators have argued that there will be little disparity when looking at equivalent statistics denoting the current financial year.
The publication argued: While GDP per person continued to grow at similar rates between 2004-5 and 2007-8, growth of median household income slowed to a fifth of its previous rate in the years immediately before the start of the economic downturn.”
With the cost of living crisis set to dominate political agenda in months leading up to the 2015 general election, many have argued that the current administrations effectiveness in displaying that this link has been recreated will be of paramount importance to their success in the next two years.
However despite an increase in economic growth recently, the median income for a home in the UK has fallen sharply in the past 5 years. During this period, the entire populace experienced a 3.8% decrease in the median income though this figure is divided into retired and working individuals.
Working households saw the median income fall by 6.4% in the past 5 years whilst retired homes actually witnessed an increase to 5.1% in the same time. This meant that the average income of a household last year was £32,500, compared to the £37,900 displayed 5 years ago.
Furthermore, during the period between 2007 and 2012, the number of cash benefits being received by households rose from £3100 to £4500.
Growth vs. Real wages
The findings in the study appear to display an alarming trend, with Mr Miliband’s once controversial remarks about the ‘broken link’ between economy and actual wages appearing far more credible.
The disparity in the directions that retired and non-retired households incomes are moving also suggest a certain unfairness in the sense that retired homes are clearly having more done to protect the value of their incomes whilst conversely little seems to have been done to ensure the same effect with homes still in work.
The argument that will dominate political debate in the next few months is whether making all the cuts to benefits and state functions is justifiable in the current financial climate, and whether the intended effects are actually happening at all.
The Treasury have dismissed the statistics illustrated in the report, arguing that wage growth was a natural consequence after the previous recessions and have identified their belief that the same will happen again. They also added that the figures are misleading, as they do not take into account the growing amount of money being taken to pension and national insurance contributions.
Prominent left wing think tank, the Resolution Foundation, rejected this however and has argued:
“It is striking that there was a pronounced slowing in the growth of median household incomes even before the years of economic downturn. It confirms that between 2004 and 2008 income growth slowed to a fifth of its previous rate, even as GDP growth kept up a consistent pace. This underlines Resolution Foundation work highlighting the major slowdown in wages and incomes that occurred well before the great recession.
“The figures also reveal a dramatic generational difference – with the incomes of working-age households falling by more than 6% since 2008 while those of retired households have continued to rise. The pre-crisis slowdown is likely to have been even starker if we looked only at working-age households.