Articles

16 November 2011

Goodbye to the good life

Gavin Kelly and James Plunkett

In the three months from July to September, Britain’s economy actually grew—by 0.5 per cent. That performance was less bad than many had feared, and some have seized on it as a source of hope. For Chancellor George Osborne it was a “positive step… laying the foundations for the future success of the country.” Even Bank of England Governor Mervyn King, hitherto the nation’s self-appointed prophet of economic doom, recently said that the squeeze “is now beginning to come to an end.” Whether or not such sparks of hope prove justified, they obscure a much bigger question: even if the economy recovers, will living standards improve?

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The 15p Chancellor? How Osborne could outflank Labour on tax

Gavin Kelly

fter a year in power, in the aftermath of a traumatic recession and with unemployment still riding high, the Chancellor needs not only to deal with the immediate economic predicament but also to chart a course to the next election. Economic and political cycles need to be aligned. It is already a commonplace in Westminster that this means tax cuts down the road, though no one knows what form they will take. The Chancellor's first thoughts have already been slipped to the PM in a secret memo.

At least that's how it was for Nigel Lawson back in 1984 --- and today, George Osborne faces a similar challenge. Can a highly ambitious but boxed-in chancellor drag the centre of political gravity rightwards - above all on the touchpaper issue of tax -- and, in so doing, win the next election on Conservative terms?

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Homeownership is history. Housing policy should cash in on the private rented sector, Guardian

Vidhya Alakeson

Investing publicly-owned land in the development of new rental properties could help solve the affordable housing gap

Karen and Darren are much like other parents in their mid-30s; juggling work and the needs of four children. With two decent salaries from full-time, skilled jobs and help from tax credits and child benefit, they should be comfortably off. But at the end of each month, there is nothing left. Despite their best efforts to rein in spending, their aspiration to move from a rented house to their own home remains just that.

According to last week's report from the Halifax, Karen and Darren's story is familiar to many young people in Britain today, who cannot rely on the "bank of Mum and Dad" to get on the housing ladder. While their parents owned their own homes, half of the 25- to 40-year-old tenants surveyed have given up any hope of ever owning a home. This fits with Resolution Foundation analysis showing that the proportion of under-35s on low to middle incomes who were renting trebled between 1988 and 2008.

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Why the 'squeezed middle' is here to stay, Observer

Gavin Kelly, deputy chief of staff in Downing Street from 2007-2010 and now chief executive of the Resolution Foundation, explains why solving the problems of the 'squeezed middle' will change British politics

Sitting in their living room in Mansfield, Karen and Darren put on a brave face about the future. They are phlegmatic about their situation – they know they are doing better than many others. Both work full time, Karen for a children's centre and Darren for a software company, each earning a bit less than the average wage, making for a decent household income. The proud parents of four children, who run them ragged, they nurture high hopes for their futures.

But scratch the surface and there is palpable frustration. Life has not panned out how they thought it would: in their mid-30s, they still can't afford to buy their own home, the cost of running a family is escalating, the constant grind of financial insecurity takes its toll, and – underneath all this – is their entrenched belief that their living standards are flatlining, and will continue to do so. "My mum's and dad's generation saw their wages go up ahead of prices, with us it's the other way around," says Darren.

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Think the cuts are biting? The pain has hardly begun, Independent

Gavin Kelly

Analysis: The most politically dangerous cut will kick in in 2013 - the abolition of child benefit for higher-rate taxpayers

Buoyed by a run of bank holidays and balmy weather, optimistic families may think that, having absorbed the changes announced in April's Budget, the worst is behind them. Sadly, that is a false hope. Plenty more pain is in the pipeline.

To see why, just look at what is coming in terms of cuts, wages, and interest rates. The cuts that kicked in on "Worse-off Wednesday" accounted for a mere 10 per cent of the total savings arising before 2015 from changes to tax credits and child benefit. The pain is "back-loaded"; over 40 per cent of these cuts kick in in 2013.

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Flat, and falling, Prospect

Gavin Kelly and James Plunkett

Will our children earn less than we do?

How much did your parents earn when they were your age? Unless you buck the trend, the answer is less than you earn. But now, for the first time in decades, it’s not clear if the same will apply to your children. From the US to Germany, living standards for typical households had stopped rising long before the economic downturn. It is time to step back from the anxieties over cuts to ask: have we stopped getting richer?

Even posing that question may feel counter-cultural. Our expectations have been shaped by the rhythm of late 20th-century capitalism: occasionally there are recessions and incomes fall, but then recovery comes and wages rise. Put simply, it has long been safe to assume that national economic growth leads to widespread personal gain.

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Trouble ahead at the Treasury, New Statesman

Gavin Kelly

For many politicians, tax cuts are the elixir of politics. In times of plenty they are deployed triumphantly as evidence of a thriving economy; in times of hardship they are handed down by chancellors as a salve to a hard-pressed public. So it should come as no surprise that, even in this parliament - dominated as it has been by arguments about fiscal austerity, tax rises and lower spending - there will be a growing debate about which taxes to cut.

Political gravity will ensure this is the case. As the economy gradually recovers - at the same time as the pain of the deepest and longest wage squeeze in living memory maintains its grip on family bank balances - politicians will be desperate to offer hope of better times ahead. They will know that tax cuts won't solve the structural problem of stagnant wages, nor will they deal with the rising pressures on the cost of living. And there will still be sharply differing views about whether tax cuts for some mean tax rises for others, as opposed to further cuts to spending. But have no doubt: all party leaders will be forced to offer respite to a public whose anger about falling living standards will reach boiling point over the next few years.

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If you liked this why don't you listen to Gavin Kelly on BBC Radio 4's Week in Westminster?

Sitting in the middle, Public Finance

Yesterday at the Resolution Foundation we launched a wide-ranging investigation into the pressures now facing low-to-middle earners. The Commission on Living Standards will focus on the long-term economic trends that are changing the reality of life for those on low-to-middle incomes in Britain, writes James Plunkett

It will bring together leading thinkers, from major employers to top economists, to look at a wide range of trends, from pay and employment to the cost of living. Its aim is to bring much greater definition to a debate than can prove elusive – think the ‘squeezed middle’ and ‘alarm clock Britain’ – and, ultimately, to sketch out a view of what can be done.

That aspect of the Commission’s work – thinking about responses to the problem – won’t just mean making recommendations to government. Employers and third sector organisations will have an important role to play in raising living standards in the decades ahead. But two big parts of the work will speak directly to how the role of government may need to change in the coming years: the question of how we reform the tax-benefit system to ease pressures on low-to-middle earners, and that of how public services can give greater support to families to raise their own living standards.

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