(Update: Raab has removed the original Tweet. Good job I took a screenshot of it).
Firstly, the graph does not show what Raab is claiming. The graph does show that after 8 years of Conservative government, real wages are lower than when the coalition took office. In fact they are lower now than they were during the Great Global Recession in 2008. This shows an appalling and shameful record.
After the global recession in 2008, consumer prices rose faster than the average wage, so the real value of wages fell. They continued to fall until 2014.
The average real wage is now actually lower than it was ten years ago.
Following the recession in 2008, average wages fell almost consistently in real terms until mid-2014. From 2014 to 2016, inflation was low and wages increased, though they’re still not back to their pre-recession levels. Now, inflation has caught up again, and real wages are levelling off a little.
Analysis by the Office for National Statistics showed that in 2014, average earnings for full-time workers grew by only 0.1%. However, the average earnings of full-time workers who had been in their job for more than a year rose by 4.1%.
So although the drop in average earnings tells us something important about the economy overall, it’s not the same as what’s happened to everybody working in the UK.
For example, the level of wages is different depending on where you live in the UK. No region’s average full-time weekly earnings is above its 2009 level.
Wages are highest in London, and the population there has also seen the biggest falls in earned income. The average full-time employee in London earned £655 a week in 2017; down from £700 in real-terms in 2009.
The smallest fall was seen in Northern Ireland, where in 2017 the average full-time weekly wage was £504 a week, down from £522 in real terms in 2009.
Public sector pay has grown more slowly than private sector pay for the past four years – though recently it has started to catch up, as the caps have recently started to be lifted.
But the private sector suffered large falls in pay during the post-recession years.
To understand changes to peoples’ incomes we need to also consider tax and benefit changes as well.
Working households’ average income after taxes and benefits has fallen in real terms, from £35,100 in 2008/09 to £34,500 in 2016/17. That has been calculated by adding income to cash social security and then subtracting direct tax (e.g. income and council tax) and indirect taxes (e.g. VAT) for households where at least one person earns income from employment or self-employment. But that doesn’t include some losses such as the bedroom tax.
The poorest fifth of households paid the most, as a proportion of their disposable income, on indirect taxes – 29.7% compared with 14.6% paid by the richest fifth of households.
Furthermore, the effects of taxes and benefits (ETB) data from the Office for National Statistics’s (ONS’s) Living Costs and Food Survey (LCF), are from a small, voluntary sample survey on which these data are calculated which comprises of around just 5,000 private households in the UK.
The ONS say themselves that the sample tends not to include the very poorest and the very wealthiest citizens. That means there is under-reporting at the top and bottom of the income distribution as well as non-response error (see The effects of taxes and benefits upon household income Quality and Methodology Information report for further details of the sources of error.
That is likely to distort the view of the extent of income inequality.
It’s also worth looking at some comparison at an international level, too.
When citizens use a public service, it’s viewed as a ‘payment in kind’
‘Benefits in kind’ – education and healthcare, for example – are also added to the final amount of income that citizens are estimated to have. However, this distorts the calculation of average income levels. Citizens pay taxes and so contribute towards paying for these services, and the poorest citizens are likeliest to rely on them rather more than the wealthiest citizens.
This means that in effect, poorer citizens using public services appear to be better off than they actually are, since using public services does not increase incomes. In fact the smaller the income that citizens have, the more likely it is that they will need to use public services. That does not make them any wealthier than they are.
Consequently, the ratio of income of the richest fifth to the poorest fifth appears to fall from twelve to one, to five to one. The inclusion of indirect taxes (for example, alcohol duties, Value Added Tax (VAT) and so on) and benefits in kind (for example, education, National Health Service) further reduces this ratio to less than four to one.
That does not present an accurate picture regarding income distribution. The poorest fifth of households received relatively larger amounts of ‘benefits in kind’ in 2017. This however, is not income. Nor is it a ‘gift’, since most people have paid into the Treasury and contributed council tax towards the services that they may need to use.
It’s almost like charging people twice for public services, which is utterly disgraceful. It would be very interesting to see the calculation of UK income distribution without this political cheat, that makes it look as though the poorest citizens are rather better off than they actually are.
Finally, its worth remembering that despite their claims, the Conservatives inherited an economy that had escaped the impact of the global crash, and was out of recession by the last quarter of 2009. By 2011, the Conservatives put us back in recession. It’s what Conservatives do. Thatcher and Major both created recession in the UK, as did Cameron’s government. Despite pledging to keep our triple A level international Fitch and Moody credit ratings – another thing the Tories inherited – Obsorne lost them. Then in 2016, the UK was stripped of its last AAA rating as credit agency – Standard & Poor’s – who warned of the economic, fiscal and constitutional risks the country now faces as a result of the EU referendum result.
The two-notch downgrade came with a warning that S&P could slash its rating again. It described the result of the vote as “a seminal event” that would “lead to a less predictable stable and effective policy framework in the UK”.
Yet the Conservatives claim they are the party of ‘economic competence’. You just have to laugh at that.
I’ll leave you with this comment, which made me chuckle:
Wages are still worth a third less in some parts of the country than a decade ago, according to a report. Research by the Trades Union Congress (TUC) found that the average worker has lost £11,800 in real earnings since 2008.
The organisation said that the UK has suffered the worst real wage slump among leading economies
The biggest losses have been in areas including the London borough of Redbridge, Epsom and Waverley in Surrey, Selby in North Yorkshire and Anglesey in north Wales, the studyfound.
Workers have suffered real wage losses ranging from just under £5,000 in the north-east to more than £20,000 in London, said the report.
The TUC general secretary, Frances O’Grady, said: “The government has failed to tackle Britain’s cost-of-living crisis. As a result, millions of families will be worse off this Christmas than a decade ago.
“While pay packets have recovered in most leading economies, wage growth in the UK is stuck in the slow lane.
“Ministers need to wake up and get wages rising faster. This means cranking up the pressure on businesses to pay staff more, especially at a time when many companies are sitting on large profits.”
A government spokesman said: “The UK’s jobs market has never been stronger, employment is at a record high with more people in work in every region of the UK since 2010 and wages are now rising at their fastest in a decade.
“We have cut income tax for 31 million people, and through the national living wage we have helped to deliver the fastest wage growth in 20 years for over two million of the lowest-paid workers.”
Stephen Clarke, senior economic analyst at the Resolution Foundation thinktank, said: “While wages are currently growing at their fastest rate in a decade and employment is at a record high, the sobering big picture is that inflation-adjusted pay is still almost £5,000 a year lower than when Lehman Brothers was still around.
“Stronger wage growth is needed to make 2019 a better year for living standards than this one.”
A change from the government that is utterly conservative with the truth would be a good starting point.
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