Household debt, pay and the magic money tree

Low wages and rising household debt is not a sound basis for any economy. Today's news that spending on credit and debit cards is rising five times faster than wages, should set off the economic alarm bells.

At every recent UK budget, I tweet and blog the one chart in the OBR report that I find particularly scary – household debt. This is what I said in March this year:

This chart is scary because every year it shows that household debt is projected to rise. With wages in real decline the UK government expects households to pick up the slack caused by their austerity economics.

These chickens are now coming home to roost.  Real incomes have fallen for three successive quarters, the first time this has occurred since the International Monetary Fund bailed the UK out in 1976. Despite saving less and borrowing more, consumer spending has fallen, resulting in economic growth of 0.2% – the lowest of any of the major G7 industrial nations.

Here is a Guardian graphic illustrating the point using ONS data.

As Frances O’Grady, the TUC general secretary, puts it: “People raiding their piggy banks is bad news for working people and the economy. But with wages falling as living costs rise, many families are having to run down their savings or rely on credit cards and loans to get through the month.”

Low pay isn’t doing productivity any favours either. This chart from the Independent shows that productivity has now fallen below 2007 levels. 

There is more evidence in a recent TUC report on insecure work, which found that those sectors which had seen higher increases in productivity over the last five years tended to be those which had experienced smaller increases in insecure employment.

What governments at UK and devolved levels need is a plan to get wages rising again. They must stop holding down the pay of public sector workers by scrapping the pay cap. The minimum wage needs to rise faster reaching £10 an hour as soon as possible and stronger employment rights to tackle bogus self-employment and other forms of insecure work.

For this to happen we apparently need a 'magic money tree'. Here are a couple of branches for that tree.

Let’s have a look at those who have been doing really well out of austerity – the richest 1%. As a report by the Resolution Foundation shows, they have recouped all their losses from the slump. Some action on tax dodging would be a start as well as halting the tax cuts that simply are not trickling down.

Another is the Robin Hood Tax.  Professor Avinash Persaud has recently fleshed out a few aspects of this long standing campaign. He argues that Britain already has a financial transaction tax – it’s called stamp duty, It raises just over £3bn a year, half of it from overseas citizens. Some trading activities are exempt from stamp duty and he believes these exemptions should be restricted. He also proposes that the tax should be broadened to cover transactions in corporate bonds and cash flows arising from equity and derivative transactions. He estimates that this would raise £4.7bn a year - a pretty hefty branch for any magic money tree.


A low wage, low productivity economy is just not the way to go. We need to get wages rising, not least in the public sector after seven years of pay restraint. A different type of economy is possible and we have the wealth to support it.

UK Budget 2017 - still no coherent economic plan

The UK Budget does little for hard pressed households in the short-term, and even less for the long-term health of the economy.

Let’s look at the issues that matter to UNISON members.

Austerity is supposed to be driven by the budget deficit, so some good news that deficit is reducing this year. However, the Office of Budget Responsibility (OBR) forecasts that it will go back up next year, instead of shrinking as planned. There is a modest short-term giveaway of around £1.7 billion in 2017-18, dominated by additional funding for local authorities in England to deliver adult social care. This is followed by a modest medium-term takeaway averaging around £750 million a year from 2019-20 onwards. So this is probably the best year we can expect for public spending for a while.

The Barnett consequential for Scotland of all this adds up to £350m. Very welcome relief, although still only a dent in the austerity cuts. It’s a bit like having your pocket picked and the thief returns part of his ill gotten gains.

Looking ahead, the OBR expects real GDP growth to moderate during the first half of 2017, as rising inflation squeezes household budgets and real consumer spending. The relatively strong start to the year implies 2.0 per cent growth in real GDP in 2017 as a whole (still very modest by historical standards), up from 1.4 per cent in November, with small downward revisions thereafter. Most experts think even these forecasts will be optimistic against most Brexit scenarios.

As always the devil is in the detail. For example, the OBR notes the decision to reduce the personal injury discount rate, which will substantially increase the size of one-off settlement payments. The Government has set aside an extra £1.2 billion a year to meet the expected costs to the public sector, notably to the NHS. Health Boards in Scotland take note!

Next, members will be concerned about wages. The OBR has made a downward revision to earnings growth of 0.1 percentage points over the forecast period, with the growth rate rising progressively from 2.6 per cent this year to 3.6 per cent in 2021. Wages are still below 2008 levels in real terms. Even this is a fantasy for public sector workers because of the UK and Scottish government’s 1% pay policy.

The OBR believes that additional employer costs such as the apprenticeship levy and pension auto-enrolment will be borne by the workforce through lower wages. Even though the latest data indicate that corporate profits have risen strongly in recent quarters. Non-oil corporate profits are estimated to have increased by just under 11 per cent in the year to the third quarter of 2016.

The headlines in the budget relate to the less favourable tax treatment of the self-employed. In fairness, there is some justification for these changes and it might make bogus self-employment marginally less attractive. However, there is no justification for the cuts in Corporation Tax, given the growth in corporate profits. Anyone who still believes in the Laffer curve should look at this chart.

So what does this mean for household incomes? According to the latest National Accounts, the headline saving ratio fell to 5.6 per cent in the third quarter of 2016 as consumer spending growth outpaced household disposable income growth. In effect the Chancellors increased revenues are being paid for out of squeezed household incomes and falling savings. Not a basis for a long term economic plan. This chart makes the point graphically.

Overall, while there is some short term public spending relief, the economy is currently being sustained by debt-driven consumption and a low exchange rate, and the Chancellor has done little to address the long-term challenges.

Bad news on the economy and Tax Credit cuts will make it worse.

The Scottish economy is slowing and cuts to tax credits for low paid workers won't help.

Strathclyde University’s Fraser of Allander Institute has published its latest commentary. It shows that the Scottish economy had slowed both in absolute terms and relative to the UK. The divergence with the UK has occurred even though expansion in the UK as a whole was slowing significantly.

Editor, Brian Ashcroft, also urged Chancellor George Osborne to think again about his planned £4.4 billion per annum of cuts in tax credits. He highlighted the impact on domestic demand and UK economic growth. He said: “The overall plan is to take £12 billion out of the economy, which is quite large. Tax credits are quite a large component of that. You are taking money away from individuals who would spend that money, whereas other people with more money would save more of it. There is a direct impact on spending that is going to affect demand in the economy.”

This supports the message of UNISON General Secretary Dave Prentis on tax credits, he said: “Mums and dads – who are already walking a financial tightrope because money is so tight – have been having sleepless nights at the thought of losing as much as £50 a week next April. Working families will now hope the government re-thinks its heartless decision to snatch so much away from so many.”

This is because Tax Credit cuts cannot be balanced simply by raising wages. Tax Credits were introduced to support working families by recognising the extra expenses of raising a family, a role businesses cannot be expected to fill, and are paid to households rather than to individual workers.

The Allander analysis has been reinforced by today's labour market statistics. As the STUC commentary says:

“This was another disappointing set of statistics which confirms the swift reversal in Scotland’s labour market recovery. Over seven and a half years since the recession took hold, Scotland’s unemployment rate is still precisely 50% higher than its pre-recession trough. While all age employment has seen a very small increase over the year, growth is now basically stagnant. If jobs cannot be found for people returning to the labour market then unemployment is unlikely to fall over the coming year. The prolonged period when women benefitted disproportionately from the labour market recovery has now ended with women accounting for most of the rise in unemployment. The small increase in total all age employment also disguises a significant fall in employment for women."

And there is little good news on wages. As this TUC chart shows, today’s Average Weekly Earnings figures show what is beginning to looks very like a pause in the recent improvements. This is reason to worry that stalling earnings may again act to stifle household demand.

The Chancellor's Autumn Statement on 25 November will be an important indicator of what action he will take to support the economy. The Scottish Government will then publish its spending plans for next year. Action on jobs and wages should be their priority.

 

Working poor lose out from tax and benefit changes.

It's the working poor that will take the biggest hit in government changes to tax and benefits despite increases in minimum wage.

New research published by the TUC shows that the poorest working households will lose on average £460 a year by 2020 due to government changes to tax and benefits, despite the Chancellor’s minimum wage increase. However, the richest working households will be made £670 a year better off.

The research analyses the combined impact on annual incomes in 2020 of changes due to be made to universal credit, benefits, the minimum wage and tax allowances. It also includes gains from the Chancellor’s planned increases to the minimum wage. This type of distributional analysis was included in every Budget across the last parliament, but it was excluded from the Chancellor’s July Budget. Now we understand why!

The difference between the top and the middle shows up even more starkly in the decile analysis for all households, which shows that the average annual gain for the top decile in 2020 (£780) is twenty times the average gain for the fifth decile (£40).

The TUC says that the research shows that the government’s tax and benefit policies will redistribute from the poorest to the richest. This will worsen inequality and poverty – especially in-work poverty. TUC General Secretary Frances O’Grady said:

"Even after the extra help from a larger tax allowance and a higher minimum wage, low paid families will still be made more than £8 a week worse off on average by 2020. David Cameron needs to explain to low paid families why he is cutting their income by the same amount as a whole year of school dinners, but he’s giving the richest a cash boost worth a bottle of champagne every week. Not only is this unfair, but it’s bad economics. We need more money in the pockets of low paid families so that they can get out and spend it in their local businesses."

And it's not just pay and benefits - it's prices as well. People living in poverty pay around 10% more than average for essential goods and services. Citizens Advice Scotland’s Poverty Premium report found that people with low incomes end up spending more on services such as metered utilities because they are unable to take advantage of cheaper pay in advance deals or direct debit discounts across a range of services and utilities.

The lack of internet access or a landline telephone creates extra costs. Around a fifth of all households in Scotland lack an internet connection, with the lowest income groups least likely to have one. This means low income households are paying up to £112 a year more for their energy due to a lack of ability to take advantage of switching or finding cheaper tariffs.

The report said: "When the poverty premium impacts people on very marginal incomes it can leave them destitute and in need of emergency assistance such as help from food banks. The poverty premium does not just make life more expensive for the financially less well off, it often pushes them over the edge and into crisis."

This often leads low income households to use pre-payment meters (PPM) for their energy supply. Action by energy regulator Ofgem to address price discrimination against PPM users has done little to tackle this. Also, a lot of cheaper tariffs require a bank account for direct debits and paperless billing, again needing the Internet.

These two reports show that the UK government is redistributing wealth from the working poor to the rich. More unequal countries do less well on almost every measure, so Britain is going in the wrong direction.

 

 

Big questions over increasing private financing for Scottish PPP programme

A strong investigation by the Guardian’s Severin Carrell today shows the Scottish Government is bringing in extra private sector funding and control to its multibillion pound infrastructure programme.

The aim is to keep key projects off balance sheet to ensure the Scottish Government meets European statistics agency Eurostat rules on measuring state spending.

Companies set up to deliver hospital, roads and other projects are being restructured, with greater private sector control and funding.

This is bad news for taxpayers and for accountability. Conventional funding with full democratic control and proper financial transparency is the best way to finance schools, hospitals and other infrastructure.

The changes have caused delays to contracts being signed off and are a major setback for the so-called Non Profit Distributing model and hub programme, which the Scottish Government tried to claim heralded the end of disastrously expensive Public Private Partnership/Private Finance Initiative schemes.

UNISON Scotland said such claims misrepresented the continuing widespread use of private finance in public infrastructure.

We have highlighted for years the ways in which the Scottish Futures Trust and the NPD model and hub, which it promotes, merely continued PPP/PFI with some ‘slight financial tweaking’ – PFI lite.

Indeed the SFT this year again won the Government PPP Promoter of the Year Gold Award.

However, the structures it helped set up seem to have fallen foul of the European System of Accounts 10 (ESA 10), applied in September 2014, despite seeking external financial advice five times since 2010 to ensure the correct classification for NPD/hub projects.

Interestingly, the increased dependence on private sector borrowing, as pointed out in the Guardian: “allows Holyrood to load up its balance sheet with more debt”, making it “far easier for Nicola Sturgeon’s government to borrow at least £2billion to fund further capital project and bolster its anti-austerity stance using new powers from the Scotland Act 2012.”

Finance Secretary John Swinney said in Parliament on June 18 that ESA 10 “is designed to provide a comparable estimate of the level of debt that is carried country by country across the European Union so that the levels of debt can be assessed on a comparable basis.

“Frankly, those definitions are constantly changing and are also then the subject of reinterpretation. The issues broadly relate to the governance of projects and whether they are controlled by the public sector or the private sector, and the acceptability of the approach to profit capping that is implicit in the NPD programme.”

He said in a letter to the Finance Committee on 1 June that the SFT has developed proposals for changes to contractual and shareholder arrangements for hub projects “which further strengthen the case for a private sector classification” and he has instructed the changes to be implemented across the hub programme, which should take 6-8 weeks.

The Guardian report says that a leaked SFT document shows that “for Hub projects affected by the changes, a 20% stake previously held in each by public-sector partners will be transferred to a new private-sector charity. That will give the private contractors the right to increase their shares in the new companies set up to deliver each project from 60% to 80%.”

The document says that “any perception of public sector control over the (project) delivery company must be avoided.”

Labour’s finance spokeswoman Jackie Baillie has tabled a series of questions in the Scottish Parliament, scheduled to be answered on Friday.

These include asking whether the Scottish Futures Trust’s revised structure for design-build-finance-maintain projects halves the public sector share of the project from 40% to 20% and, if so, for what reason.

And for what reason the construction of (a) Our Lady and St Patrick’s High School, (b) the North West Edinburgh Partnership Centre, (c) the Royal Hospital for Sick Children in Edinburgh, (d) the Dumfries and Galloway Infirmary and (e) the Aberdeen Western Peripheral Route has been delayed and what the (i) length and (ii) cost of the delay is.

There must be full transparency on the costs and effects of these changes, which clearly reinforce our reasoned opposition to PPP/PFI. And the Scottish Government should be using its coming, far too limited, extension of Freedom of Information law to cover all companies and other bodies providing public services.

Fair Pay Fortnight - Scotland and the UK needs a pay rise

Scotland and the UK needs a pay rise. It's necessary for hard pressed workers and their families, but it's equally vital for the economy.

The next two week's will be Fair Pay Fortnight, a series of events across the country that will raise awareness about Britain’s cost of living crisis. Working people in the UK are seeing their living standards squeezed harder and harder every year. Workers in Scotland have lost nearly £2000 since 2010 and while jobs may be returning to the economy they’re increasingly low paid, low hours and low security.

This has happened because the economy has seen a big shift from wages to profits. You have to go back to the 1860’s for a pay squeeze as long as this one. If the wage bill had just kept up with inflation there would be £5bn more spending power in the Scottish economy. It is low wages that has delivered the slowest recovery recovery from recession since records began.

The UK government is also collecting £33.4bn less in income tax and national insurance than official forecasts suggested because of the lack of earnings growth in the UK, according to independent analysis in 'The living standards tax gap just got bigger', a report published today by the TUC. This analysis is based on the wages forecast made in June 2010 by the Office for Budget Responsibility (OBR). If earnings growth had been in line with the OBR forecast, income tax and national insurance receipts this year would total £308.4bn. But the Treasury is now expected to collect just £275bn. This could have delivered nearly £3bn of extra spending on public services in Scotland and is almost half the austerity cut on the Scottish Government budget.

Falling petrol prices may deliver a cut in the headline inflation rate, but it only masks the real pressures on family finances. Since 2007 the average rent for a Council House has increased by 26% and in the same time the wages of a Council Worker has increased by 8.3%. UNISON Scotland has published a series of reports in our 'Damage' series in which members describe in their own words the impact of low wages on them and their family.

Families have been plugging the gap by using savings or getting into debt. 30% of families say they have less than £500 put away, compared with just 14% in 2013. The scariest chart from the OBR report on the Chancellor's Autumn Statement shows just how much Osborne is relying on household debt to dig us out of the economic mess he has created.

Even among those suffering, the pain is not evenly spread. Women in low pay have a pay gap of 34.2% and young workers classed as low paid has more than tripled over the past four decades. As the Poverty Alliance has highlighted today, in work poverty in Scotland is growing, with almost two thirds of children in poverty living in working households. On pay rises, inequality is being compounded by what the CIPD calls a "tale of two workforces", with public sector workers most likely to see their pay held down.

In contrast, the wealth of the richest 1,000 people in Britain doubled to £519 billion since 2009, about two and a half times the annual deficit. FTSE 100 Directors had a 21% pay rise last year and now earn 123 times the average Scottish full time worker. In 2000 that ratio was 40 times. Put another way, they earned the average Scottish wage of £27,045 in just over two days of work last year.

David Cameron was making a somewhat belated pay rise pitch to the British Chambers of Commerce last week. In a TV reaction interview after the speech, one such fat cat couldn't stop laughing at the notion. That's why they are all queuing up to donate to the Tories already stuffed election fund. We are doing very nicely thanks - 5 more years please.

In Fair Pay Fortnight we will be developing these themes, making the case for greater fairness in our economic system. Scotland and the UK really does need a pay rise.

 

 

Health Inequalities - We need an end to austerity

Austerity and what is wrong with it has been leading the news thanks to the Syriza victory in the Greek elections.

This blog regularly highlights our opposition to austerity and the damage being done to families and particularly young people and the most vulnerable members of our society.

One of the cruel scandals of the wide and unfair health impacts is that too often people in poverty struggling with ill-health are attacked for unhealthy lifestyles by the wealthy and the powerful suggesting these problems are simply self-inflicted.

But in New Scientist magazine Scotland’s former chief medical officer Dr Harry Burns has reiterated that job loss and social breakdown, NOT smoking and bad diet, is at the root of the country’s infamously high rate of premature death.

He points out that from 1950-1970 Scotland had one of the lowest rates of death from alcoholic liver disease, but by 2005 it had the highest.

Dr Burns said: “It may be that what we are seeing in Scotland is the consequence of austerity in the 1970s and 80s, when social change and joblessness led to a breakdown in family life and a cycle of alienation...What we have seen in Glasgow may become evident in southern Europe over the next two decades.”

Scottish Government 'must do better' on preventative spending

The Scottish Parliament Finance Committee today warned that nothing like enough is being done in Scotland on preventative spending.

It is widely agreed that in key areas of public services the focus needs to shift from tackling symptoms of disadvantage and inequality to addressing root causes, with what the Committee described as a “decisive shift to prevention.”

However, today’s report from the Committee on the Scottish Government’s Draft Budget 2015-16 makes clear that “there is little evidence of the essential shift in resources taking place to support a preventative approach.”

This is damning, but UNISON welcomes the Committee recognising the reality of the situation.

As the report shows, radical changes in shifting resources to prevention are hampered by the scale of the financial challenges facing public services.

We are urging politicians from all parties to act now to put fairness and tackling inequality at the heart of economic policy and to look at the vast amount of evidence in favour of this.

Cameron is getting his economic excuses in first, but others should know better

However they dress up the rhetoric, economic orthodoxy is convincing too many politicians of all parties that there is no choice but to accept austerity economics. They should know better, as a number of commentators are pointing out.

Professor John Weeks from University of London has provided an excellent economic history lesson to explain why austerity doesn't add up. When Osborne became chancellor the UK public debt was £974 billion (63% of GDP), and at the end of this September, four years and five months later, the debt was £1451 billion (80% of GDP). This increase of £475 billion exceeded the so-called ballooning of debt under Gordon Brown that, through a massive recession, rose by £440 billion.

In fact Osborne has put on more debt during his years of "sound fiscal policy" and much-touted recovery that Brown did during an economic collapse. In contrast Gordon Brown's fiscal stimulus stopped the rise in public borrowing in late 2009. Increased spending stopped borrowing from rising, because that spending arrested the fall in the economy that had created the need for more borrowing. In contrast Osborne has been incapable of bringing borrowing down. This is because his expenditure cuts undermine growth. Slow growth means slow revenue recovery, hardly rocket science even for Osborne.

Steve Keen from Kingston University warns that we are heading for another financial crisis, but not for the global economic reasons Cameron is using as his latest excuse. Cameron is panicking about a rising level of government debt, when at 91% of GDP, it’s 80 percentage points below the level of private debt. If Cameron thinks reducing government spending when private credit is contracting is good economic policy, then he’s ignoring the biggest car crash in economic history – the European Union, where government austerity turned the crisis into a second Great Depression.

Martin Wolf in the Financial Times (£) also questions Cameron's concerns about the global economy. He points to the difficulties caused by the fiscal austerity that his government recommends have become particularly evident in Japan and the eurozone. He argues that these stagnant high-income economies are the weakest links in the world economy. To understand why, he says we need to analyse today’s most important economic illness: chronic demand deficiency syndrome.

He points to three reasons for this. Firstly the post-crisis overhang of private debt and the damage to confidence caused by the sudden disintegration of the financial system. Secondly, and almost the opposite, economies suffer not just from a post-crisis balance-sheet recession, but from an inability to generate credit-driven demand on the pre-crisis scale. Thirdly, slowdown in potential growth, due to some combination of demographic changes, slowing rises in productivity and weak investment. But he says that this last set of explanations feeds directly into the second. If growth of potential supply is expected to slow, consumption and investment will be weak. That will generate feeble growth in demand.

Of course Osborne is less concerned about the effectiveness of austerity economics, than his long term plan to reduce the role of the state. Austerity is just an excuse for his ideological goals. What is more worrying, as John Weeks points out, is Ed Ball's conversion to austerity. Is it that the political strategy of being fiscally tough outweighs economic common sense? What he should do is go back and read his own Bloomberg lectures. I once told him that I thought he understood economics then, but it's not too late to change course and adopt a different more progressive political and economic strategy.

 

 

Austerity Economics Don't Add Up

This is UNISON Scotland's latest report on the impact austerity economics is having on our public services and the staff who deliver them.

This info graphic outlines some the problems

Dave Watson has put the report in the context of Challenge Poverty Week in this article on the leading Blog, Left Foot Forward.

 

Posted with Blogsy

The shift from wages to profits, and what to do about it

The impact of the shift from wages to profits, and what to do about it, is covered in a new booklet by Professor Özlem Onaran, 'State intervention for wage-led development', published by Class.

She explains that the reversal of the trend towards relatively egalitarian income distribution achieved during the post-war period, is associated with a weaker and more volatile growth performance. In order to maintain consumption levels in the absence of decent wage increases households turned to debt and that contributed to the Great Recession. The recovery in Britain is built once again on the shaky ground of household debt instead of wage growth.

What really caught my eye was her concise explanation of the link between wages and the economy. It's worth repeating in full:

"Empirical evidence shows that when the share of wages in national income decreases four things happen. First, consumption decreases, since workers consume more as a proportion of their income compared to the owners of capital; hence when there is a redistribution from wages to profits, domestic consumption in the national economy unambiguously decreases. Second, although private investment may increase due to higher profits, this increase is insufficient to offset the negative effects on domestic consumption. Third, net exports (exports minus imports) increase due to a fall in unit labour costs, but in the majority of countries this increase is not enough to offset the negative effect on domestic demand. Finally, in an environment of the global race to the bottom in the wage share, most of the positive effects on net exports are wiped out as labour costs fall simultaneously in all countries, and their international competitiveness relative to each other does not change significantly. Thus, in the vast majority of countries a fall in the wage share leads to lower growth; this is what we call a wage-led growth economy. The UK is a typical example of a wage-led economy."

Bite sized economics at its best!

She then sets out a strategy of wage-led development with a policy mix that includes labour market policies aiming at pre-distribution, as well as redistributive policies through progressive taxation. Specific recommendations include; Strengthening collective bargaining, increasing the minimum wage, enforcing pay ratios, ending public sector pay freezes and restoring progressivity into the tax system.

Well worth a read.

 

Posted with Blogsy

Britain needs good jobs and a pay rise

Britain needs a pay rise, not just to bring relief to hard-pressed workers, but also to drive a sustainable economic recovery.

That’s the message from the latest research and is particularly relevant to our members in Scottish local government, who are being balloted on industrial action over pay from next week. Their pay is the lowest, even across the hard pressed public sector, as they are asked to keep public services going against all the odds.

A TUC study on the living wage showed that women earn just 66p for every pound earned by men working full-time (which is a pay gap of 34.2%). One of the main reasons for this huge gender pay divide is the large concentration of women doing low-paid, part-time work. This has led to a majority of women working part-time earning less than the living wage in over 50 local authority areas across Britain.

It’s no better for young workers. The proportion of workers aged 21 to 30 who are now classed as low paid has more than tripled over the past four decades, according to new research from the ResolutionFoundation.  Almost three in ten (29%) are now low paid, equating to almost 1.5 million young workers. In 1975, the proportion earning low pay was less than one in ten (8%). This also explains why many young people are locked out of the housing market, with just 3% of buyers in June aged between 18 and 30.

Missing out on the claimed economic recovery is not limited to these groups. The Poverty and Social Exclusion in the United Kingdom project has revealed that 800,000 Scots were too poor to participate in basic social activities, more than 400,000 adults do without essential clothing and almost one-third cannot afford to heat their homes adequately in the winter. The majority of children in poverty come from small families with at least one parent in work – so much for the UK government’s ‘strivers and shirkers’ analysis.

Across the UK, the percentage of households below what the public considered a minimum standard of living has risen from 14% to 33% over the last 30 years. This is despite the size of the economy doubling, indicating the gap between rich and poor is increasing.

Low incomes are also linked to underemployment. The TUC’s analysis of the latest labour market data shows that while unemployment has fallen by over 400,000 since early 2012, under-employment has risen by 93,000. And at 3.4 million the current level of under-employment is over a million higher (46%) than it was before the recession. It also highlights that the numbers who want more hours in their existing jobs means that under-employment is still increasing. In UNISON, we see this in sectors like care, with nominal hours contracts becoming more prevalent.

The answer to what some economists call the productivity puzzle is that we have too many low-pay, low-skill and low-productivity jobs in low-investment workplaces. We need to rebalance the economy with an emphasis on creating good jobs and promoting fair levels of pay for everyone – not just those at the top.

Re-inventing our economy

We can re-invent our economy so that it works for people and the planet.

That’s the theme of a major conference organised by civil society organisations, including UNISON and the STUC, across Scotland in Glasgow next week. The conference brings together some of the leading experts from across the UK on alternative economic approaches. The aim is explore these alternatives and chart a way forward that offers a radical, sustainable, alternative economic pathway.

There is a widespread view, not just in Scotland, which argues that our current economic system isn’t working. We have growing inequality, high levels of in work poverty and stubbornly high unemployment. Even the new jobs being created are likely to be part-time and insecure with the growth of bogus self-employment and zero-hours contracts. The conventional economic development solutions simply aren’t working and are also driving climate change and resource depletion. The bankers and financiers have learned nothing from the crash they caused and are leading us into future financial chaos.

The conference will pose key questions such as how do we generate investment into rewarding jobs while at the same time, cutting polluting greenhouse gas emissions and reducing poverty? How can we extend public democratic controls over our economy and the financial sector so that it serves our ends?

If all of this sounds like leftie ranting on the fringe, take a look at who is now talking about inequality - and I don’t just mean the Pope!

Mark Carney, the Governor of the Bank of England noted in a recent speech that all the research suggests that "relative equality is good for growth”. He also said: “All ideologies are prone to extremes. Capitalism loses its sense of moderation when the belief in the power of the market enters the realm of faith. In the decades prior to the crisis, such radicalism came to dominate economic ideas and became a pattern of social behaviour.”

Carney also lauded an inclusive social contract and recognised that tackling climate change actually offers great scope for technological progress and economic growth: "Environmental degradation remains unaddressed, a tragic embarrassment now seldom mentioned in either polite society or at the G20."

The authors of a new booklet ‘Trade Unions and Economic Inequality’ point out that the decade in which the equality gap in Britain was at its narrowest was the decade in which trade union penetration was at its greatest, with more than 80 per cent of British workers covered by a collective agreement. They provide an excoriating critique of inequality and its consequences. But unlike others, the authors provide a blueprint for how to tackle it.

Solutions are also what we hope next week’s conference will offer. So why not come along to the debate and the conference. Both events are free, thanks to generous support from the Carnegie Trust and others. There is an impressive range of speakers and opportunities to contribute your own ideas. There is a better way!



There is a public debate on the evening before the conference on Wednesday 10 September at the University of Glasgow Union starting at 7:30pm. The conference is in the Kelvin Gallery at the university on the 11 September. Registration details at the conference website.

Wage growth is needed for a sustainable economic recovery

There are still some very mixed messages on the economy in the latest batch of reports.

Scotland's economy continued to strengthen over the first half of the year, with a forecast to of the strongest year of growth since 2007, according to the Scottish Government's latest State of the Economy report. Output expanded by 1% in the first quarter of 2014, moving beyond pre-recession levels, and business surveys indicate that expansion has continued in the second quarter of the year.

The latest retail sales figures for Scotland increased in the second quarter but at a slower pace than Great Britain as a whole. Data indicated that sales volume grew by 0.8% between April and June and on an annual basis, they were up by 2.9%. In comparison, retail sales in Great Britain increased by 1.6% during the second quarter, and by 4.5% annually.

However, the National Institute for Economic and Social Research (NIESR) said Britain is growing at its slowest pace in a year, following news that the manufacturing sector is performing less strongly than the City expected. NIESR believed the economy expanded by 0.6% in the three months to July, down from 0.8% in the three months to June. Their estimates come after ONS released figures showing manufacturing lagging well behind the service sector in its ability to recoup ground lost during the "great recession" of 2008-09. The ONS said that output from UK factories remained more than 7% below its pre-recession peak. The strong pound is also a concern for exporters.

Increasing growth is also having little impact on wages. The FT highlights that very few have increased the starting salaries they offer, denting hopes for a recovery in wages after six lean years. Just 2% of the 1,000 employers surveyed by the Chartered Institute of Personnel and Development reported a significant increase in starting salaries. The organisation’s survey of 1,000 employees showed the median pay rise this year was just 2 per cent, down from 2.5 per cent in 2013. The summer Labour Market Outlook (LMO) report also warns that wage growth is expected to remain weak, even though output is growing strongly and the jobs market is buoyant.

Further evidence comes from today's ONS Labour Market statistics. Unemployment in Scotland has fallen by nearly 1% in the last quarter with significantly bigger reductions for women than men.

Irritatingly, there is again no Scottish wage data, but UK data shows that average wages excluding bonuses rose by 0.6% in the year to June, the slowest rise since records began in 2001.

Low average wage rises are an indication of the level of so-called "spare capacity" in the economy. This is the Bank of England's measure of the extent to which the UK economy is underperforming, as a result of a lack of business investment either in hiring new staff, technology or machinery. It is also an important factor in their advice on the timing of any interest rate rise. There is some, albeit outdated, evidence that the wages of full time workers are rising faster than average wages. This might indicate a further shift to part time work.

Francis O'Grady at the TUC sums this up well, "The combination of rising employment and falling pay growth suggests the economy is very good at creating low-paid jobs, but struggling to create the better-paid work we need for a fair and sustainable recovery. Self-employment has been responsible for almost half of the rise in employment over the last year. The fact that self-employed workers generally earn less than employees means our pay crisis is even deeper than previously thought, as their pay is not recorded in official figures. Falling unemployment is always welcome – particularly for young people who are finally starting to find work – but unless the quality of job creation increases Britain’s living standards crisis will continue and people will be locked out of the benefits of recovery."

Overall, it does appear that the economy is recovering slowly. However, better employment numbers still reflects insecure and part-time working. Most importantly, wages are not increasing and that is an essential element of sustainable economic growth.

 

 

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Privatisation demolished

"Privatisation isn't working. We were promised a shareholding democracy, competition, falling costs and better services. A generation on, most people's experience has been the opposite. From energy to water, rail to public services, the reality has been private monopolies, perverse subsidies, exorbitant prices, woeful under-investment, profiteering and corporate capture."

This is the introduction to a an article by Seumas Milne in the Guardian. Arguably the finest destruction of the case for privatisation for some time and well worth a read.

He argues that "Private cartels run rings round the regulators. Consumers and politicians are bamboozled by commercial secrecy and contractual complexity. Workforces have their pay and conditions slashed. Control of essential services has not only passed to corporate giants based overseas, but those companies are themselves often state-owned – they're just owned by another state."

He gives examples of how time and time again privatised services are shown to be more expensive and inefficient than their publicly owned counterparts. Railways are a very recent example and he points to East Coast and Scottish Water as good examples of public service delivery in a largely privatised service.

He is scathing about Ed Ball's halfway house, where franchises continue, but the public sector is allowed to bid to run them as well as the privateers. He says, "That sounds like an expensive dog's breakfast. Rail renationalisation has the advantage of being not just popular but entirely free – as each franchise can be brought back under public control as it expires. To resist it in those circumstances can only be about the power of corporate lobbies or market ideology."

The alternative of tougher regulation is dismissed as "trying to do by remote control what's far better done directly and won't fix the problem on its own. Experience has shown that you can't control what you don't own". He references Glasgow University's Andrew Cumber's excellent work on this point.

He argues the case for new forms of public ownership in the banking sector and utilities – energy, water, transport and communications infrastructure. It's a policy that has support from the majority of the public and reflects experience across the world where privatised services are being brought back into public ownership.

He concludes, "in Britain the power of City and corporate vested interests engorged on the profits of privatisation is a powerful obstacle to this essential shift. Pressure for a genuinely mixed economy – something previously regarded as the commonsense mainstream – is bound to grow as the costs and failures of unbridled capitalism mount. Rail can only be the first step."

These issues will be addressed in Scotland at a conference, 'Re-inventing our economy for people and the planet' to be held this September at Glasgow University. More details to follow.

 

 

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No recovery in living standards for working people

There is no recovery in the wages and living standards of working people since the rich and powerful crashed our economy.

A number of reports have analysed the latest data on household incomes and wages. The Scottish Government's paper highlights that the number of people living in poverty in Scotland increased to 820,000 last year. The 2012-13 figure, which accounts for 16% of the population, was 110,000 more than in the previous year. The number of children in poverty rose by 30,000 to 180,000.

The figures indicated:

• 16% of people (820,000) were living in relative poverty in 2012-13 - 110,000 more than the previous year and an increase from 14%.
• 19% of children (180,000) were living in relative poverty in 2012-13 - 30,000 more than the previous year an increase from 15%.
• 15% of working age adults (480,000) were living in relative poverty in 2012-13 - 70,000 more than in 2011-12.
• 15% of pensioners (150,000) were living in relative poverty in 2012-13, 10,000 more than the previous year and an increase from 14%.
• Typical income in Scotland in 2012-13 was £23,000, equivalent to £440 per week.

For some real stories behind the statistics you can read a survey, commissioned by UNISON's NHS Greater Glasgow branch. Nearly a third of respondents said they constantly struggled to pay household bills, with 11% falling behind on mortgages or rent. 17% were behind on council-tax bills, 15% on hire purchase payments and 20% on credit-card payments. Borrowing from family was common and 16% of workers used credit unions. 4% had used payday loans. 58% said they could not meet an emergency expense of £500.

The Scottish Parliament research unit (SPICE) has produced an interesting analysis of long term trends in Scottish household income. There is a lot of discussion about how wealthy Scotland is in the referendum debate. However, this tends to focus on GDP rather than the incomes of people that actually live in Scotland. This paper shows that the average level of disposable income per head in the UK is £16,791. Scotland comes in just below this at £16,267. However Scotland is catching up since devolution. Between 1997 and 2012 household income in Scotland increased by 27% as against 24% in the UK as a whole. Within Scotland we still have significant inequality. Glasgow City has the lowest level of disposable income with just over £14,000 per head, compared with just over £19,000 per head in Edinburgh.

Official UK figures from the ONS still show median and mean incomes in 2012-13 6% and 9% below their 2009–10 peaks respectively. This follows a period of slow income growth that began in the early 2000s. The net result is that the official measure shows both measures of average income no higher in 2012–13 than in 2001–02.

In 2012–13, 10.6 million individuals in the UK (17%) had a household income below the official absolute poverty line (e.g. below £272pw for a childless couple, net of taxes and inclusive of benefits). This is actually a poverty rate no higher than before the recession. However, when incomes are measured after deducting housing costs, the number below the poverty line (e.g. below £235pw for a childless couple) rose by about 600,000 in 2012–13 to 14.6 million (23%). This is about 2.0 million higher than in 2007–08.

Of course not everyone is suffering. The bankers in the City and their friends in the media may not have noticed growing poverty, because the share of post-tax income captured by the richest 1 per cent leapt from 8.2% to 9.8% in 2013/14.

There may be a modest economic recovery, but the official data shows that household incomes have not recovered, except for those who caused the crash. And they won't, until we see real wage growth.

 

 

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