This week, a new Resolution Foundation report suggested that typical UK incomes won’t grow at all in the 2020s. For a decade, after-tax incomes enjoyed by people in this country are going to be, in real terms, stagnant.
but to varying degrees
This is not a radical view. The Resolution Foundation is about as solid, hardcore, right-wing Labour as you can get. Its last chief executive is now a Treasury minister. The new chief executive came from the Treasury to the Resolution Foundation.
So this is mainstream thinking, and the report stresses that their view is shared by both the Office for Budget Responsibility and the Governor of the Bank of England.
Britain is economically dead. We are being screwed by the system, and not by accident. It’s by design. A number of key things are preventing development from happening in this country, and preventing real incomes from rising.
The wrong people are being taxed
One is that too much tax is being paid by ordinary working people, and too little is being paid by people who have high levels of wealth, investment income and capital gains. Companies are also not paying their fair share. But ordinary people are paying too much, and the reasons are very straightforward.
Council taxes are rising too fast and unfairly. Council tax is a deeply regressive tax, falling much more on those on lower income, so fuelling inequality.
And the personal allowances in the tax system have essentially been frozen since Rishi Sunak was Chancellor of the Exchequer at the beginning of this decade (‘fiscal drag’). So, more people are paying more and more tax out of their earnings, and real household incomes after tax are stagnating.
A ‘rentier economy’
But other factors are absolutely critical as well. Rents are rising, and becoming unaffordable, as are houses. Prices are becoming unaffordable because of a policy to keep interest rates far too high.
This week, people in the City of London have called on the Bank of England to stop selling the bonds that they bought during the COVID crisis, to try to keep interest rates high. Interest rates are much higher than in comparable countries because of decisions made by the Bank of England, backed up, of course, by the government. That forces house prices up for those with mortgages, and rents up for tenants.
The result is that we are living in a ‘rentier economy’ where vast amounts of people’s disposable income is being paid in interest to those who already have wealth.
Meanwhile, the government is refusing to spend enough to maintain public services and to put in place a proper social safety net in the UK. Benefits are too low. Expenditure on health and education isn’t keeping up with demand.
Not everybody is losing
But there’s another problem. While median income is going to be stagnant from 2019 to 2029, that’s not true for everybody. Those at the highest level will see some real increase in their income over that period. But the worst off, that is, the poorest 10% of people – 2.8 million households – will see their income fall by £1,500 a year.
So, overall stagnation means that the poorest people in this country are getting poorer. In particular, families with children. Parents and children are seeing poverty increase day by day.
And one reason for that is that the Labour government refuses to remove the two-child benefit cap, which would transform the situation for many of the poorest families in the UK.
But another group in society is doing quite well, and that is pensioners. Because the triple lock guarantees that state pensions will always rise by more than inflation, their incomes are rising.
We could not come up with a situation which is more perverse, where the old are seeing increasing incomes, while their children and grandchildren are getting poorer.
This is policy, not accident
What we’re seeing here is market failure. Neoliberalism has failed to come up with any form of real growth, but it’s also the consequence of deliberate political policy.
High interest rates, high taxes on working people and broken government services do not happen by chance. They happen by design, decided upon by Rachel Reeves and the Treasury and imposed on government departments. We are suffering poverty as a consequence of government choices.
And at the same time, Labour is choosing to do nothing about rentier economics. It’s not building enough houses to ensure that rents can be stabilised. It is not bringing interest rates down, and instead, it is increasing private profits and subsidising them out of state spending, while people in real need are getting no benefit at all.
Neoliberalism has failed. The Resolution Foundation did not say that: this is a centre-right think tank. But real wages are stuck, public services are being cut, and work no longer lifts people out of poverty. Infrastructure is collapsing and hope is disappearing.
What could government do about this?
Here are some things which government could do. It could:
- end austerity;
- let the state invest in the infrastructure that we need to rebuild growth;
- see services as the foundation of national security, of national income and even of national assets;
- talk about social security, not welfare and benefits;
- see that the social safety net is part of the provision of dignity within our society, and not handouts to scroungers; and
- tax wealth, and not work.
We could do all of that. And we could, at the same time, control rents, build homes and reform council tax to free up more properties for occupation.
We need political parties that focus on living standards. The obsession with ‘balancing the books’ is crippling the wellbeing of this country. If political parties won’t name this crisis, it’s down to us to do so. And we must talk about the economic and moral failure at the heart of Labour.
